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The answer to the hylic/NPC question is that their soul is being physically blocked by the devil, a disease has taken their body; which is why they appear like soulless beasts, and why the world from their perspective seems entirely material and devoid of spirit:
>Satan, who is the god of this world, has blinded the minds of those who don't believe. They are unable to see the glorious light of the Good News.
The biological mechanism for spiritual blindness is parasites. Satan uses parasites to operate in this world, and you never know who is infected. Like Mr. Smith.