The capsule size is only partially to blame for the abrupt turning.
There is a lot of tuning in things like this. How fast do you scale the turning force in relation to the obstacle and so on. Ideally, I’d sit and fire these guys at a wall at various angles until the turning influence in all cases was just enough to have them follow the wall.
…but this is a demo and I don’t have time for that (especially considering random wandering alone sends them right back into their obstacle half the time). I’m 99% sure it’s possible with just what’s there, though. The only thing the capsule size would affect in that case is how far from the wall they would walk. (And of course how quickly they have to react when hitting it face on.)
There is nothing in the bullet integration that prevents adding multiple capsules so someone could always try it. There is nothing in the framework preventing it, anyway.
I will spend lots of time tweaking steering in the real game, though. With a real environment with actual walk-goals, etc. it will be easier to see what will/won’t look good.