Apparently the first iteration of Radiant AI was much more advanced. So much more, in fact, that NPCs started doing crazy things like killing each other for food if they had no other option. Their behavior was too extreme, so Bethesda lobotomized everybody's AI. Basically like the exact plot of Shutter Island. Even so, that E3 demo is inexcusable. By the grace of hindsight, it's obvious that the entire interaction was very carefully crafted by hand.