I can totally see what the op is getting at, immersion is a big part of games like wow and it's part of what makes it special. I never played in the days before wrath that much so I can't really say from experience, but I have to say that even in wrath when I went outside of Dalaran or any of the other capital cities I would at least find a few people, even if it was just for dailies and what not, but there were for sure people there. I would honestly love to see more world based content and maybe even some more world pvp content that is actually engaging and entertaining enough to make it popular with people actually participating.
Though some of the stuff wouldn't really work, the reason there are those level 90s protecting low level towns is because if they weren't, how many people would honestly make it out alive? You could just sit and gleefully let the low level guards that are protecting the town hit you as you giggle and their soft ticklish attacks, senselessly murdering anyone foolish enough to come round or try to even challenge you. I think phasing is a hard part to work with in the game since a lot of the more recent stuff requires it to be phased, like Krasarang Wilds for example, if there wasn't phasing you would have the people that were leveling there by quest and then all the level 90's that were partaking in the landfall events, it would really work to fit all that into one entire zone without stuff getting weird and compact. Making it so you had to travel more and actually explore and have a little mini adventure to get to the dungeons and raids and bgs does sound like fun, but honestly most people would still just sit in capital cities until two of their unlucky guild mates made it to the stone and simply summoned them, it wouldn't really fix anything on that part.
As for putting all future expansions on Azeroth, I don't really feel like there is honestly much room left any more, with Northrend in the North, Eastern Kingdoms in the East, Kalimdor in the West and Pandaria in the South, along with the giant raging maelstrom churning at the middle of the sea, that only leaves the open oceans on the map for adding enough content areas for the needed places for an expansion to have. Going back to two points you brought up, the phasing and the do not add any new zones, how do you propose that happen? You can't just take the old zones and revamp them up to max levels and expect it to work like the old area it was for whatever level as well as working as the new higher level area. Phasing is a useful tool, and it helps get around problems like that.