I am not sure why people claim that BGS has small cities/settlements. Name another game (not an MMO, of course) with larger cities/settlements, especially one set in an post-nuclear war apocalypse or medieval setting where cities/settlements are obviously going to only be a handful of people.
BGS has around 1,000 NPCs populating their worlds, not counting spawns, of course. I have never seen another game even attempt such a population. Even high-profile titles like Bioware's are tiny compared to what BGS does, and such titles are very linear as far as their locations are concerned.
Example of settlements/cities in a medieval world:
If you want to see a good presentation of what a medieval setting would be, including "major" cities, watch the "Robin Hood" mini-series directed by Richard Carpenter. It was made in the 1980s and is now on DVD as "Robin of Sherwood". It is by far the most accurate presentation of the Robin Hood legend, partly because it was filmed on location at various castles and other locations. Even Nottingham is an extremely small settlement/city and the local villages are even smaller. This is how things were in that time period. A post-nuclear apocalypse would be very similar as far as size or population is concerned. It would be extremely unrealistic and immersion-breaking if there were large population cities. That's aside from the fact that having large populations would mean that other parts of the game would have to be cut back a lot due to technical limitations as well as limits such as development budget. It's not surprising that no developer offers such a setting.