Fire up a game of Una or Hog and chat away with the computer players. Search Engine Wars will also chat with you even though there isn't exactly a computer player in it.

As for how it's done, mine is based on a perl script I wrote years ago that matches on keywords and fairly complex expressions. Even so, it's still pretty stupid. My implementation is stateless, so it doesn't remember anything you or it may have said previously in the conversation. It could be ported to DM fairly easily, though I imagine it wouldn't be as flexible or efficient as the perl version.

Making something that seems more intelligent would certainly be an interesting (and difficult) project!