I'd much rather have cities and towns with hundreds of NPCs than the ones in Skyrim with 20. With larger cities, you can still have those 20 NPCs all with unique quests, among the other NPCs. If anything it would make searching for them a game play mechanic in its own right.
DO NOT TRY ARGUING WITH ME I DO NOT CARE - FUCK OFF.
Yeah what I'm thinking of is a more advanced version of that. AFAIK Skyrim NPCs just have a schedule that tells them where to walk and hang out at different times of day, enough to give the illusion of a living world to someone sprinting through collecting quests but not much else.