You make a very strong argument for something, but not for games being literary. Just because there is this concept in gaming of playing a character in a setting, where your character doesn't know thing you know, that doesn't make it a literary endeavor. Maybe an acting endeavor, but even then I don't think so because you can still just be playing yourself, you can be playing with the character without acting, or even in third person. So even if I accepted the implication of your post (that players and GMS always must speak in first person), I don't have to accept your conclusion that it is literary. But what is more, plenty of people don't engage RPGs in the first person. And further, lots of people allow for all kinds of anachronisms in play and dialogue. You might not like it, but I've definitely been in groups where characters did things like reference modern movies even though we were in a fantasy setting.Now, think about this 1st person argument for a second. You will, presumably, choose to speak in a certain way and use certain words in an attempt to "portray a character", right? You wouldn't proclaim, in character, in a fantasy game, "Hey, that looks like the critter at the end of Men in Black!" That would be considered out of character, no?
So, as soon as you add in that criteria - what I say should be in keeping with the character that I'm playing - you have left the realm of conversation and gone into the literary. You would never think, "Hrm, given what I think about me, I think I should say X and not Y" in a conversation. You aren't trying to portray yourself.
Thus, play always is a literary endeavor. You are using literary criteria to judge and control what you say during the game and people's enjoyment of the game will be affected by that judgement.
Also your post does just reinforce the main point I made there which is this thread is about playstyle more than anything else.