AND...these places like Dawnstar, Falkreath, Winterhold or Morthal are supposed to be Cities. Cities, not towns or villages, according to Bethesda. Now look at cities in Morrowind-Balmora, Ald Ruhn, Ebonheart, Vivec, and Oblivion-Anvil, Bravil, Leyawiin etc.
Your argument of 'most people live outside the hold capital' is not valid either as according to Bethesda the cities are supposed to be the most populated places. The smaller hold capitals are a joke. Not everwhere can be as big as Whiterun, Solitude or Windhelm but what happeed to the rest? Did they run out of time, budget or incentive?
-a- I didn't say 'most' people live outside of the cities. I said 'a lot' do.
-b- A capital is not necessarily a big or the biggest place in a region. It has several context-sensitive interpretations. It could just be the most prestigious, prosperous or powerful settlement in a region. But, if these are meant to be London-sized medieval cities then, yeah, Bethesda did disappoint. Whatever the case may be, my explanation makes more sense, so I'm going with my interpretation of Skyrim. Anything else doesn't really make sense.
-c- Incentive, most likely. Increased complexity for diminishing returns. A lot of people who are going to play a mainstream TES are not going to bother with intricacies and just want to kill things and level up.
-d- Mods will fix this.