Not necessarily no. How it's usually done is that there is a list for the different cues like: "Player at full health, low health, enemy near death, enemies defeated." etc.
So you'd compose a piece of music, probably just a 32-bar track or something, and you'd compose variations of it that fit with the defined scenarios. Then, you'd want to make transitional bars and probably an ending stinger too.
These are usually then rendered as separate files and are programmed with FMOD or WWise. BUT on a soundtrack release, the composer would arrange those sections into one piece according to...however you want, really.
You see this a lot in strategy games like total war. There is an ambient loop when you're setting up your troops, a percussion-heavy theme that comes in when you order your troops to move for the first time, a new loop when the armies clash, etc. But they're all in the same key and roughly same tempo, so it sounds like one piece.
One of the most attractive things about scoring video games is they're basically the only medium left where people still actually want memorable pieces of music, though like I said, a lot of newer games are eschewing that but that's probably because they're aiming to literally be hollywood movies instead of games and sometimes hire hollywood composers.
So much "BGM" from video games is memorable. Megaman, Street Fighter, Ninja Gaiden, Tekken, F-Zero, Mario, Zelda, Final Fantasy...the list just goes on. The Castlevania soundtracks are especially memorable and legendary.
Is a rock song monotonous because it uses the same instrumentation all the time? But again, you don't have to keep it the same from beginning to end, but you don't want too many different instruments either. The piece has to stay consistent is what I mean.
Most of the time, long tracks like that which loop are used for hub worlds and such and they are almost always ambient pieces that are dynamic.
I take the usual approach there: you set up some evolving pad or drone sound(s) and over top of them write a bunch of different melodies or just heavily-reverbed, very-distant-sounding phrases. Sometimes with a lot of different instruments, sometimes not. Then, I'd render all of the different melodies and phrases separately from the drone/pad loop. Then, in the game engine, we'd set it so that exactly which melody track plays each time the whole thing loops is randomized, so you won't hear the same loop twice in a row.
That's how most such tracks work. The music to tretogor gate literally uses the "where faeries live" soundscape and lute from Era II: Medieval Legends.
but the music can still be quite memorable and there is the odd occasion that the tracks are composed as full, 4+ minute loops.