Thats great for a single player game, but the problem is after the initial wave you want your new players together, not spread out. Spread the races out in the one city, but fuck having 12 starting areas. once the game is more than three months old, it's bad design to have them all over. At start one is all you need.I hate central city's, that's pretty much the shit they started in EQ2.
I like races spread out all over the places, so there is more of a unique experience depending on what race you pick.
In EQ, depending on where you started it was a vastly different feeling to the world, and people remembered those starting zones till this day.
Spend the time you would spend developing cities into doing more raids, quests, and other action zones.
I don't get the hate for instancing. Starter area's and open world zones are perfect for something like this, then you can contract them based on the number of people playing. Keep your large sprawling dungeons static, but use instancing where it makes sense. It's far better than having 50 servers, where in a year 47 of them will be complete ghost towns.