Given the nature of the NPC AI, it seems a lot of their canned behaviour isn't just them following a set path they're programmed to follow, but in some cases learned behaviour. There's a number of things we see before Guy's interaction with Millie that demonstrates they've already gained some degree of autonomy just by interacting with one-another and the players.
The familiarity every NPC has with Guy, and especially his friendship with Buddy. From a purely gameplay standpoint, there's no real reason for the NPCs to interact, at least not to the extent they're shown. Guy cashing people's checks at the bank and the Barista serving drinks, sure, it adds some background flourish for the players, but Guy's personal interactions with Officer Johnny, Store Owner Joe, and Buddy are things that are just so minuscule there's not really a point to including them, and seem like unlikely details someone like Antwan wouldn't bother having coded into the game. Buddy and Guy's entire friendship in itself is something that players would never even see, so it's unlikely it was something pre-ordained by the developers. It seems that the AI was already sophisticated enough that, when NPCs interacted, they modified their behaviour patterns, resulting in them learning to interact with one another; Guy learned to help Store Owner Joe up, Officer Johnny and Guy learned to say hi to one-another, and Guy and Buddy spent so much time together at the bank they developed a close friendship. Putting aside how fascinating this is from a developmental perspective, it's just an added Heartwarming Moments to realise Buddy and Guy's friendship is completely genuine.
Conversely, and something that crosses into Tear Jerker: the sheer fear the NPCs have of the "sunglasses people", IE the players. All the NPCs have spent years getting beaten, assaulted, shot, murdered, and generally terrorised by uncaring players. When Guy beckons Buddy to join him on his adventure, Buddy tearfully rejects the idea, not because he doesn't want to, but because he's scared, and similar fear is expressed by other NPCs. Hell, Buddy is a security guard who is actually armed, but rather than use his weapon he just disarms himself and hides with Guy; it's likely he was intended to be a hostile like the guards who defend the stash house, but with how often the bank is robbed (and thus, how often Buddy would have gotten beaten, shot, and/or killed by players), his AI learnt to hide instead to avoid it.
The reason Keys prefers to stay in QA testing instead of becoming a programmer is because he's hoping to find a glitch in the game that uncovers his original build.
Or, borderlining on Fridge Horror: Keys created an amazing game, and when it was bought and then told it would be shelved, he took a major hit to his pride and confidence, feeling that he wasn't good enough of a programmer or creator and his abilities only warranted him being QA at best. And it's not until he discovers the truth behind Guy and that Life Itself's code existed in Free City and was working way better than he and Millie ever hoped that he gains some self-confidence. This is even backed up in the interview with Millie and Keys for Life Itself with Millie pointing out that he doesn't see how great he is as a personality quirk of his.
The ability of the NPCs to learn also explains why Guy is such a terror in-game. He's been watching players fight for the entire span of the game and can access all of those memories and apply them personally, working out kinks as he goes along. Just as the Barista taught herself to make a cappuccino, Guy taught himself to fight, and, thanks to being an AI not touched by input lag, can respond in combat faster than any player.
There is also a simpler explanation: since he's a part of the game itself, once he learns enough to not keep dying, he can literally level-grind 24/7. He doesn't need to eat or sleep, his bed only serving as his respawn point.
Guy can also do the impossible, like there being 'no button for that' when it comes to kissing — there may also be no button for say a level 1 player grabbing some one's gun and using it on them.
This is something that is seen in generational AI learning. An AI is better able to push boundaries because it sees those boundaries differently, and doesn't have any preconceived notions of how to do anything. One AI was set up to learn a Shoot 'Em Up, and it figured out the very pixel to be outside a boss's barrier but still close enough for the laser to start inside. This allowed the AI to defeat the boss by bypassing the shield in a move very few players could ever perform.
The reason Antwan is pushing so hard to release Free City 2 despite it being a mess is Millie's lawsuit. He knows that if the code is ever made available for review it will be easy to prove that he stole Life Itself. When Free City goes offline, the likely plan is to wipe all the servers and then use them to host the sequel, effectively erasing all evidence of Life Itself. Of course, this only works if the sequel's code isn't also cribbed from their work, so this time it's all original Soonami work. However, building a new engine from scrap is hard and time-consuming, especially with Antwan's penchant for suddenly making new demands and overpromising. The game is being pushed out far too early in its development cycle to ensure there's no gap in Soonami's portfolio, with Antwan assuming the IP will carry them.
This also explains why the sequel isn't backwards compatible with the original. The brand new engine can't share any incriminating code with the original, so none of the data can be exported.
Buddy survived his seeming deletion because his code wasn't actually on the destroyed server. The server farm was set up such that each unit controlled a set area within Free City, but the actual AI programs were all run out of the original Life Itself unit. Buddy's avatar was in an area controlled by a destroyed server, so it was deleted as there was nothing controlling it, but the main AI program in the Life Itself server was able to restore itself afterward.
While obviously the movie plays pretty fast and loose with actual game mechanics, there’s actually precedent for Guy’s code not being overwritten. What first came to mind for me was the Cursed Blood incident in World of Warcraft, where they couldn’t just patch the problem and restart the servers: they literally had to roll them back to an earlier point in time, which is exactly what would have needed to happen to completely reset Guy.
The reason Antwan isn't able to stop Guy reaching Life Itself is that the map isn't running on any single server unit. When Soonami started building their servers, each unit was made to host a particular section of the map in a single continuous instance, but they needed a shared reference point to ensure the individual sections were in the correct place and orientation. The Life Itself map was used for this purpose, so an instance of it exists on each server to serve as the reference. Antwan would have needed to destroy every server unit in order to stop Guy.
The obvious deepfake effects used to portray Dude actually fit perfectly for what he is. Just like his dialogue is full of gaps and placeholders, his entire appearance is a work-in-progress. The art directors likely just swapped Guy's head onto a different NPC body and were trying to finalize the overall design before a touch-up phase which would have made the combination look more natural.
Why does Guy initially call the sunglasses people "heroes", despite the fact they are anything but? It's a holdover from his Life Itself programming!
Alternatively he is using a more mythological definition of hero being somewhat supernatural, moreso than NPCs, but not all powerful.
Why is Antwan buried in lawsuits at the end of the movie, even though Millie agreed to drop hers? Well, his agreement with Millie — give her the server with the code to Life Itself and the remains of Free City in exchange for her dropping the lawsuit and relinquishing all claims on the Free City IP and derivative products — is basically settling out of court, which would ultimately be fully documented by both parties’ lawyers. Basically, to get out of Millie’s lawsuit scot-free, Antwan basically had to admit to, and fork over evidence of, exactly what she’d accused him of. Which means that every other person who has a lawsuit against him for stealing their work can now show solid evidence that he has already done this to someone else. That would give a lot of weight to lawsuits similar to Millie’s.
One that people may miss is a small detail about Guy himself. When we start the film, prior to him finally waking up and breaking his loop, Guy is clean-shaven. As he begins to evolve by playing the Good Guy, he begins to have a noticeable five o'clock shadow. When the game servers get reset and he's reverted back to his prior NPC status, his five o'clock shadow is gone and he's clean-shaven again. And after Millie kisses him to restore his memories, the five o'clock shadow comes back.
A lot of the land-based vehicles in the world of Free City are seen with brands on them, such as Ducati (for a couple of the motorcycles featured in Millie's garage) and Chevrolet (seen on the Camaro driven by Guy during his and Millie's run to Hitman's Beach, as well as in a shot of a player being force-logged out and their car crashing into a wall due to be disconnected). This might seem like an odd thing, but it's actually Truth in Television. There have been some examples in the real world where an MMO has partnered with real life brands as a means of promotion. For example, for the TV series Defiance and its MMO, the producers partnered with Chrysler to allow for the Dodge Charger to be used in the show and Dodge Challenger to be used in the game. When season 2 came around, the show and game incorporated the Dodge Durango as an additional vehicle. It's not without reason that, in order to rake in more money, Antwan made some product placement deals with real life corporations to be featured in the game, especially after four years of the game being popular and having a large fanbase.
In a similar case, there's several instances in the movie where songs appropriate to the situation randomly start playing — for example, "Wrecking Ball" playing when Guy tries to grab a wrecking ball to escape Keys and Mouser. There's plenty of games out there that use licensed songs in their soundtracks (with Grand Theft Auto, the main game Free City takes inspiration from, being one such example), so for all we know, those songs are playing in the game In-Universe too. This could even apply to the scenes where Guy pulls out weapons from the MCU and Star Wars and their respective themes start up — activating the weapons could very well trigger the songs to start playing in-game!
When Antwan gives an example of a restaurant that's completely different from Kentucky Fried Chicken, he comes up with "Albuquerque Boiled Turkey". Even when he desperately tries to be original, the best he can do is to use the same name and tweak the variables in it, instead of suggesting something that is actually a new concept. Even giving the example of, say, a sushi or phở restaurant would be better for making his point.
Even funnier due to the parallels in real life between KFC and Antwan. Harlan Sanders started Kentucky Fried Chicken as a small time restaurant, but afterwards sold it when it became a franchise. Keys and Millie selling their game to Soonami is like Sanders selling his KFC franchise to John Y. Brown Jr. and Jack C. Massey, which in turn was purchased by Heublein, Inc. Sanders took his original recipe, while the KFC franchise stopped using it, and started using the recipe in a second restaurant called The Colonel’s Lady’s Dinner House (aka Claudia Sanders Dinner House), similar how Millie and Keys use what was left of Free City and their original build of Life Itself to create Free Life.
You can tell that some of Keys rubbed off on Guy when it came to the programming side. When Millie breaks into Keys apartment, Key states he's looking around Millie's general area instead of looking directly at her because it would violate his NDA with Soonami. After Millie kidnaps Guy from the bank after he has been reset to his default state, he tells her that he's never seen her face and only the general area around her head out of fear that she might kill him for describing her to the police.
In a freeze-frame bonus, in the scene where the jetpack player drops after crashing in front of Guy after he gets his first pair of sunglasses, you can see the floating stacks of cash have Antwan on the banknotes. It serves as foreshadowing of how greedy and self-centered the man turns out to be.
Guy gives over-the-top expressions for how wonderful his coffee or bubble gum ice cream taste, but never says what they actually taste like. Obviously, he was programmed to like the taste of certain things, but Keys had no way to actually translate the concept of taste into his artificial world, so Guy genuinely loves these things, but can only express it in incredibly abstract terms.
Everyone is amazed when Guy earns levels faster by performing good deeds. This lends early credit to Free City being built upon Life Itself's code, as the latter was designed to be a benign/pacifist sandbox from the start; the violence was introduced with the change in direction.
Keys is bewildered by Guy kissing Molotovgirl because "there's no button" for that, but when Molotovgirl later needs to kiss Guy for plot reasons, she can do so just fine despite being an avatar controlled by a human player.
Millie's an experienced programmer who was actively looking for insight into the code; it's possible that she was able to write a patch to allow her avatar to kiss Guy by copying the code from the moment when he kissed her originally.
Upon first watch, three gamers/programmers here assumed that she figured out how to make a close-enough motion in the return animation from firing her weapon, and that's why she pulled it out and just kind of shot a missile off down the other end of the street into nowhere.
Small point of contention: she isn't shooting it into nowhere. There's a cop car coming after her (she says she has badges on her when she's dragging Guy into the alley); she's shooting the missile at the cops.
Perhaps there's a "kiss" emote available to PCs but never assigned to NPCs?
We already know that Millie has hacked her way into the game; Guy could have inspired her to add a button for that to her hack.
So Guy is created from a combination of Keys and Millie from a combination of their personalities. Keys claims he's a "love letter", but isn't he technically their son? And doesn't that make Molotovgirl, as an extension of Millie, having a relationship with Guy Freudian?
Guy was created by Keys using traits of Millie in the same way that someone trying to get together with someone else that they liked would start mimicking their behaviors and likes/dislikes. For reference, see Phil Connors in Groundhog Day trying to woo Rita by liking the same cocktail, the same ice cream flavor, except in that case, Phil (from Rita's perspective) had learned all of this seemingly overnight, while Keys had natural time to notice Millie's interests, making incorporating them into Guy less creepy in context.
If Antwan legitimately purchased Keys' company, why would he need to hide the game engine?
Money, dear boy. The contract signed most likely assured Keys and Millie royalties based on sales of the final game. Stealing the engine rather than negotiating its use in Free City both saved Soonami the costs of developing their own engine and cut out the royalties for its creators, which would have been an impressive sum across the game's life. Antwan is obviously short-sighted and greedy enough to do something like this, considering the disastrous sequel.
In addition, buying the company and the publishing rights still wouldn't give him control of the basic code underlying the game. That would remain the property of the programmers unless it was specifically bound to the company as a work-for-hire — which would be highly unlikely in an independent game company. So Antwan basically cheaped out in the most potentially expensive way possible by stealing the code rather than paying for its use.
On top of that, videogame IP laws are notoriously convoluted due to the various individual assets requiring their own respective copyright/trademark protections as opposed to a single one covering the game as a single entity. So it's entirely feasible that the license to publish Life Itself did not include the rights to use the game's engine for another product.
Here's one: Other than stylistic choice, how are player characters (as in their avatars) way more emotive and expressive in the game in a way that's not possible? For example, after Millie reveals to Guy that Free City is a game and that it's facing it's demise, Guy reminds her that she told him that they weren't the same, Millie's avatar begins crying. For Revenjamin Buttons, when his player is addressing his Twitch stream, his player model turns towards where the camera is and talks directly into it. Also, there are other times when Millie's avatar smiles, or shows surprise on her face (like when Guy clues her in that his programmer is in love with her) that matches her real world reaction. For a game like Free City, things like this wouldn't be possible, most likely because of the cost of spending time to add such emotes. Typically, in MMOs or any multiplayer-based games like GTA Online, any facial animations would occur with full body emotes, while most of the time the player characters often have a neutral facial expression. NPCs like Guy would be able to express a wide range of emotion on their faces as a means of trying to make the experience of Free City to be more immersive for players. But player characters like Millie's MolotovGirl or Revenjamin Buttons shouldn't be able to have such emotes.
One possible explanation — given that many laptops and such have cameras, perhaps the game use these cameras to translate players' actions into expressions on the player avatars, like a Vtuber rig. After all, pretty much every player uses a microphone headset to talk to others. It could be similar.
As we see in the “real world” scenes, what the players see on their computer screens is veeery different from what the NPCs see. They see a vibrant and realistic world. Players see a low-poly cartoon version of that. So the “emotions” that NPCs and avatars display in the game world may only be perceivable by the NPCs themselves. To players, when characters talk they may only see lip flaps.
