If i see the squishing together is largely consisting of buildings. If so, i keep an eye for whether they're advancing questlines. To me, that means they're focusing on accumulating buildings, which are costly but earn money, before they buy up land, which is costly and does NOT earn money. Money from the buildings (and the characters that accompany each of those buildings) isn't the most glamorous way to earn your land, but it is the most intelligent.
As far as characters walking around ... Hmmm. I used to keep my characters on one-hour tasks most of the day. Though it was tiring and boring, it was the best way to earn money. I rarely came back to my town at the exact moment they completed their one-hour tasks. Keep in mind that when a visitor to your town comes in when a character has finished the task, THEY see the character wandering aimlessly. If I had Moe carrying the panda around, when I returned 65 minutes later, I would see him in my town still lugging around that panda, with a thumbs-up overhead. The only thing a visitor would see at that same moment is Moe wandering around.
When keeping characters on repetitive, one hour tasks to try and make the most money, the only way to round them up quickly is to have them in a confined area. Hence, a limited number of streets.
Obviously there are EXTREMES to which some go, but some of the factors you are pointing out may just be symbolic of a person working their hardest to get money to build their towns.
