I'm not sure the distinction is meaningful at a high level. That which can be implemented in hardware can be emulated in software.
It may be significant with respect to a specific implementation. Do you mean to imply that the current crop of LLMs hallucinate only due to some flaw in the hardware they run on?
There is no software at all, it is all hardware. These are mere abstractions because the reality offers some guarantees which allows one to transfer one system onto another as if the underlying system didn't matter. Those guarantees allows one to speak of commonalities between one stuff and another.
In that vein, there is no hardware either. It too is just an abstraction. However, that is not particularly meaningful. We draw lines around those abstractions and are able to compartmentalize them when discussing them.
It may be significant with respect to a specific implementation. Do you mean to imply that the current crop of LLMs hallucinate only due to some flaw in the hardware they run on?