See, I'd much rather they took the Moldvay/Winneger approach to world building. Where do those characters come from? They come from the town that you're starting in.
That's certainly an assumption. I don't think I've played a D&D game
ever where every character came from the same town. One of the games I'm in right now has someone from a different
plane (a gith). Or possibly a different planet, I don't know, since it's Icewind Dale and there's a spelljammer involved and the character has a connection to it (no spoilers, please). My upcoming game is city-based--a
big city--and I still had two players who wanted to be from outside of it. I'd wager that unless you really force the players to have their characters come from this single area, that probably a majority of games are going to have at least one PC from somewhere far off.
And then you have other problems. Even if everyone is from the same town or village, where did the wizard study? If the answer is anything other than "I found a book and studied at home," suddenly you have to think about things outside the home area, like wizard schools. If you have a monk, do they have a monastery, and if so, where is it? If you have a paladin, do they belong to an order, and if so, where is it? Where did the warlock meet their patron? If it's here in town or its surroundings, what does it mean for it that there's a way for townsfolk to come under the sway of this eldritch being?
Just thinking about these things, which Moldvay and Winneger didn't have to do because they had far fewer options back then and they were still working under Gygax's assumption that nonhumans would be incredibly rare, means that the world is going to be bigger than just this one town.
Gods? Don't need 'em. You're a cleric? You tell me who your god is.
Another big assumption here. Several, really. Because the nature of the religion is going to have a major impact on the world and the way the players are going to act in it. The world is going to be very different if you have D&D polytheism, more accurate polytheism, monotheism, dualism, spiritualism, animism, multiple different types of religion, or no religion whatsoever. It's probably better to have big things like religion spelled out up front so that everyone is on the same page.
And if you haven't decided on the gods and religions, there are a lot of elements that you might have trouble justifying later on. For instance: healing. Can the players hope that a cleric might be able to cast
cure wounds or
lesser restoration on them? Can they hope that there's alchemical versions of these spells? Or is all healing purely through mundane treatment and rest? Or undead? Do they exist? How can they be defeated? Are they natural or unnatural? Both of these things will likely need to be addressed eventually, even if nobody is playing a divine caster.
But yes, I agree that the players
should chime in and help build the world. The players (most of them) worked with me to develop the city, the tech and magic levels, the basic shape of the religion, important themes and flavors, and most importantly, the types of adversaries the players wanted to fight.