Lanefan
Victoria Rules
My argument isn't so much about whether the make-it-up-on-the-fly vs nailed-down-in-advance approach produces more or less realism. In fact, I think those are almost unrelated axes.@Micah Sweet, @Lanefan, and @robertsconley absolutely have made that argument. I'm fairly sure @mamba also has.
They have explicitly rejected approaches like those described by @pemerton as being not just incapable of generating that feeling, but actively antagonistic to the very possibility of ever feeling that way.
My argument is that such an approach a) feels impermanent, as though everything is built on shifting sand, and b) carries a far higher risk of glaring inconsistencies unless someone - usually the DM - is really really good at taking notes on the fly while at the same time otherwise remaining engaged in the game.
Re a) above: it's similar to walking into two pubs; one where the lightweight chairs and tables are able to be cleared away on a moment's notice to turn the space into a dance floor or meeting hall or whatever, and another where the seating is permanently-installed booths and heavy furniture and its only possible function is to be a pub. To me the latter is vastly preferable as a place to hang around in, it feels solid and permanent and somehow more "real" than the other more temporary-feeling space.