As long as I don't see "-insert city here- citizen" like in Fallout I'm happy. I would rather them use a random name generator - a different generator for each race/six- or something like that, and have the only conversation options be rumours. That's of course assuming they have a ton of people in cities.
I'm not really sure why that bothered me in Fallout so much. But it did.
Edit* Forgot the "why" in my last line.
THIS. Exactly what I was going to say. I get the argument that its cool that every NPC is unique in Oblivion, and I agree, that is really cool, but lets face it, even THAT isn't realistic in a certain way. The real world is chalk-full of people you will BARELY register as existing, even if you pass by them in, say, school everyday. They need a name generator, cause everyone needs a name, and maybe their topics of conversation should depend on area of the city their living in (i.e. they live near the waterfront so they talk about the smell) but otherwise if your going to have a huge city there needs to be whole crowds of people who just don't matter. They need to move though, not stand in one place. I hate to bring it up even though lots of people have already, but this is somewhere where the Assassin's Creed series excelled, and I REALIZE they're two different games in two different genres, but some of the innovations in AC are simply so good they're upping the industry standard, period. They need to move Beth, and the flow of traffic needs to feel like a flow, not a bunch AI's having pathfinding issues. They don't necissarily have to have a place to go, just a route.
Though, all of this is ONLY in the case of a big city in Skyrim. I don't really care if there is one or not. I felt Skingrad in Oblivion had a pretty big/crowded...ish feeling, and though i recognized that for a population their size a city like that would just be absurd, but really I just let my imagination fill in the extra dark ally ways and seedy pubs i wasn't seeing. Its not big deal either way.
What REALLY matters is that the NPC's you DO interact with need to be deep, not just feel like a quest-giving-station. Make talking to them important, maybe giving clues about their (or other people's) quests that really matter, and make they way you ask questions make a difference in the conversation as well.