But yes, we need some interesting settlements. I thought Fallout: new Vegas did this quite well. There were lots of places, many of them pretty small, but they all had some interesting things to do.
As opposed to Oblivion, where any settlements outside of the major cities were more or less useless, outside of 1 quest they were involved in.
I think Morrowind did the best with towns though. Lots of them, a few big ones with lots of quests, and some with very little of interest at all, yet they still seem to be functioning towns.