Creators, celebrities, and engagement farmers will use it to increase engagement and generate more revenue for themselves and Meta. You are forgetting Meta is a for-profit company and their goal is to increase quarterly profits by increasing the amount of time people spend on the platform.

Engagement with other bots.

Real users tend to play 5 minutes with these chat bots and that's it, it's just not a long term engaging experience.

Maybe not for you but plenty of other people do spend a lot of time on Meta's digital properties. The human/AI avatars will be another engagement maximizing feature for a lot of accounts and I'm certain it will increase revenue for Meta.

So is it going to increase engagement and generate more revenue if it turns users off?

That's yet to be determined. Most commenters on HN falsely assume their preferences are the default ones for everyone.