ZFR: No strong preference, depending on the game.
I liked the one in BG. Towns were scattered with people, many of whom were just "Commoner" or similar and had random things to say. But as long as it fits the game overall, I'm happy either way.
My thoughts went out to BG too, I'd rather have more commoners, most of whom have just a single hello phrase, than an almost almost empty town like the one mention in the OP. What I dislike though about Baldur's Gate, most of those commoners are just standing about.
The one I know of that was best done, is Drakensang, where in the main city the people are actually doing something: going from a to b, carrying goods, working, the city in Drakensang (I forgot it's name) really feels alive.