On the "competition" between Assignment and the Quiz: I saw numbers somewhere that they are the two most used activities in Moodle. That "competition" is not true since they cover two different areas.
About combining Quiz with the Assignment: Yeah, one has to be creative to combine various Moodle tools to imitate a classroom scenario. That said, this particular combination is not my favorite. Maybe due to a situation which I came to know: An institution with comparable numbers conducted a high-stake exam using the same model. The exam paper was converted to a series of GIFs, one GIF per page, and delivered through a Quiz. The students printed them, students wrote answers in ink scanned with a mobile app and uploaded to an Assignment. The thing crashed. In a synchronized high-stake exam everybody submits literally in the last minute. The server started to get sluggish. The sys admins didn't know their servers well and did the exactly the wrong thing - causing it crash and loss of answer scripts. Can't really blame them, that was at the onset of the pandemic.
I'm not saying that the same could happen in your application. Still, intuitively I would choose one or the other. Isn't there a question type where the teacher and student attach files? I thought, there was a plug-in sometime, which allowed the teachers to collect the student files in a Quiz, or was it the Assignment?
Or, taking the Assignment path, see MDL-71349 or MDL-83810. (Found in Marking workflow and multiple attempts.)
About the AI interpreting student work: I am sceptical. When the student becomes a professional, does the employer need an AI-translator to understand his work? It won't take long for the translator to replace its master!
