You dont have to worry about the distant land stuff at the moment. I only do a distant land update with TES4QLOD when lots of changes have taken place as the whole process is visual and takes time anyway. Just work on the city and landscaping for now, place whatever you need to place and so on and dont try to do any distant view stuff as the game wont recognise it as the entire distant land has to be run from a master file. What major world projects like this do are farm out areas to be modded, that are then done in esp format where no distant land will appear in game. Once the esp is finished, send the esp is sent to the mod collator who will then merge the esp to the master file and run a distant land generation tool, which is what I will do with a number of esp merges.
The best way is not to worry about distant land generation at all. I can do an entire merge with TES4Gecko as I use vista 64 with no memory limits (or a huge memory dump available anyway.)
Create the city, land etc as you fancy and how you wish it to be, in game it wont show up in the distance anyway and the city should be placed in a small world rather than done as an open city as the game will lag so badly it will be impossible to play on anything than a very high end rig.
Place the city exterior walls only and set them all as visible when distant, place the rocks, trees, land etc with the landscape editor and dont try to do any distant land generation as you would need to merge the esp into the master file to do it anyway, and I will do that my end. Once the exterior walls are placed create a small world with the parent world as Hiboria. You will then need to open this small world and navigate to the same cells that your city is located.
You can then go to the hollow outline of walls and select and copy all of them or as many as each set of cells will allow. Then go into the small world "HIBastaroth" or whatever you choose to call it, then navigate so all the cells from which you selected and copied are visible in the render window. Then paste in place these copied walls. They will appear in exactly the same spot in your HIBastaroth small world as they are in Hiboria main world. Repeat until all the walls and gates etc are in place. You can then work on the small world city and link the two via teleport doors. So you see the exterior walls are only ever going to be a hollow shell, though you would need to do the copy and paste in place thing so you can align a few houses etc in the main Hiboria world hollow walls area that will then be ticked as visible when distant. So in the Hiboria main world (hiboria is the working name for the Mesogea worldspace) from a distance the player will see walls and house roofs etc that are an illusion. Climbing over the walls would drop the player into a no detail dummy city. However when the player goes in through the gate they will teleport to the other side of that gate in the small world and look out onto a dummy main world with the real detail inside the city.
This is the start of a basic tutorial explaining worldspaces: http://cs.elderscrolls.com/constwiki/index.php/World_Space_Tutorial
Also, take a look at Hazelgate in the construction set, or Anvil or another of the cities. All I do when making a city is start with a fresh esp where nothing else has been touched or changed, go direct to the cells of the city in the region editor, place the exterior walls etc and landscape the immediate surrounds, then make the small world interior for the town or city, copy and paste in place the walls, then do all the major work in the small world on the town. When all is done, I go outside and do some landscaping. I never touch the distant land stuff other than ticking certain buildings as visible when distant.
After all that is done I probably move on to another couple of esp's then finally merge them in time and date order via Gecko, then run a distant land thing with TES4QLOD as a finishing touch and only at the point of releasing the whole mod.