Realistically, yes, I imagine Theramore is much bigger than what is actually in game. However, when you have a faction leader tell you to your face that your city is about to be attacked with a seriously destructive weapon from a unbalanced and dangerous leader with the power to make it happen, it would have been more intelligent to get as many people out of the city as possible. But she does the opposite and brings more people in. She made error after error when she was given this information and, honestly, looks like a terrible leader and tactician for doing things the way she did.
Besides, when you go around claiming you're totally neutral in the Horde//Alliance conflict and then allow one of the factions to use your city as a staging ground for an invasion against the other faction, you would have to be completely mentally retarded to think there will be no consequences or repercussions. Jaina may be a brilliant mage, but she is a terrible leader in every sense of the word and should have no say whatsoever in how things are done.