because it cannot determine a fact from fiction

This is way too narrow. Even if it were able to determine fact from fiction, a neural network would still be able to hallucinate as long as it has no ontology: if it doesn't "know" the boundary between objects it has no way of knowing the atomicity of its facts, so it will inevitably combine even known "facts" into falsehoods.

To illustrate, the following fact-based syllogism would sound perfectly valid in the absence of a working ontology:

  A: That green flask costs $10
  B: This flask is green
  => This flask costs $10