What is the best tool/setup to use an LLM to actively work on a text document real time, like cursor.ai does for code? 

The workflow I’d like is closer to “colleague commenting + making suggestions in your google docs” than copy/pasting a bunch of stuff back and forth.

If you're working with Markdown, Cursor is pretty OP for text editing. 

I loaded up my entire Obsidian vault and found it pretty amazing to surface ideas in old notes and make changes using Chat / Composer.

Have you tried using cursor in a markdown file? Claude's UI works for me but if you want something more inline that may get you closer to the experience you're looking for

https://lex.page/ 

i haven't used it myself so can't speak to its quality, but believe that is what it's going for