Meeeeh, I've argued this so many times, and it can be such a lengthy argument
edit: Okay, time to elaborate.
First off, smaller overworlds will
not be a breeding ground for social interaction. People will always clump in specific levels regardless of how small the overworld is. Look at UN. People are always at Town Center. That has nothing to do with the size of the overworld. You could crop UN down to just Town Center as their whole overworld and people would still be clumped outside of OSL, thus the rest of TC is equally as 'useless' as the rest of the overworld.
However, like I said I've argued this a lot so I'm going to simplify things:
Making an overworld small is not going to magically fix the problems you mentioned. It has nothing to do with the size or content of the overworld but the attitude of the developers. The only way a large overworld would be a waste is if it was poorly planned and executed... and surprise, that's exactly what happens! UN's overworld isn't what I'd consider huge, but it's a ****ing maze to navigate through and mostly empty/unfinished. You can't just go from one town to the other, most of the time you'll end up at a dead end. Most UC servers will start with a huge overworld, simply with the intention of 'wowing' players with the size. They'll never have the manpower to fill it.
There are countless other examples that back up what you say, but I don't agree with the real problem being the size of the overworld, but the developers behind them. I'm not condoning 50x50 gmaps and such, but I'm against the idea that overworlds should be a max 10x10 because people think it will magically make the server better. Better planning and execution will make the overworlds and servers better.