I agree with the concept, but let's not forget that most cities became ghosttowns almost immediately. Very little incentive to do anything in a player city that couldn't be done faster and more efficiently in a place like Coronet or Mos Eisley.
I'd love to see a player city system implemented in TOR at some point, but it would be a waste of developers man hours if it wasn't going to be more than just an aesthetical thing. I'd rather see those hours go into something quest / end game / expansion / space related.
As for the crafters being needed, I think for Bioware they hit a broader assortment of players by saying "You can get it here, or you can get a very similar item here" with not one necessarily being better in many ways. Not to mention the email system has eliminated the need for any interaction with a vendor.