"... potential for A LOT of individual objects. "
Not obligatory.
I remember when flying over some middle-sized villages over the Swiss middle plain that one could see some people here and here, but of course not massive crowds, like in a rock concert.
"...I did a low pass in my 109 and they didn't even move or look up..."
This is not an valid argument, at least not in 2011.
A low-poly sprite (and when I say "low-poly, it's low-poly, enough to be realistic at one hundred meters away) could have some basic scripted movements.
I remember how cool I found for instance the trees moving in the wind in Shadow Warrior and it was in 1998 on a Pentium 800
"basic' doesn't cut it with the whingers."
Again, this is not a valid argument.
If it's possible to model in the game a military truck exact to its most little pieces (1), it's also possible to model some people and animals at the necessary resolutions for being "natural", when seen at some hundred meters away.
(1) what it's quite useless by the way in an aviation sim, as these objects are not be seen from very near from an aircraft.