It has to match the prompt and make as much sense as possible

So it's specifically designed to make as much sense as possible.

and they should not be treated as ‘fact generating machines’.

You can't really "generate" facts, only recognize them. :) I know what you mean though and I generally agree. I'm really interested in LLM stuff but I definitely don't really trust them (and no one should currently anyway).

Why did this bot say that Hitler was a great leader? Because it was confused by some text that was fed into the model.

Most people are (rightfully) very hesitant to say anything positive about Hitler but he did accomplish some fairly impressive stuff. As horrible as their means were, Nazi Germany also advanced since quite a bit also. I am not saying it was justified, justifiable or good, but by a not entirely unreasonable definition of "great" he could qualify.

So I'd say it's not really that it got confused, it's that LLMs don't understand being cautious about statements like that. I'd also say I prefer the LLM to "look" at stuff objectively and try to answer rather than responding to anything remotely questionable with "Sorry, Dave I can't let you do that. There might be a sharp edge hidden somewhere and you could hurt yourself!" I hate being protected from myself without the ability to opt out.

I think part of the issue here is because the output from LLMs looks like a human might have wrote it people tend to anthropomorphize the LLM. They ask it for its best recipe using the ingredients bleach, water and kumquat jam and then are shocked when it gives them a recipe for bleach kumquat sauce.