What do you mean, "just"?
That lack of distance radically changes the dynamics of such a setting. Interaction between the different quarters is constant and unavoidable. Isolation is not possible. And any crisis that affects one part of the population can immediately spread to others. Anyone who wants to keep on top of it all - stay informed, and control the unfolding events - needs to react constantly to the latest developments, instead of just waiting a few days (or weeks) until he hears the latest news from the frontier.
A large, mixed community is essentially a whole setting in its own right - put into a pressure cooker and brought to boil.
Add teleport, teleport circles and portals, flying mounts, lighting railways etc., and you can be faster in the elven forest than you can walk through the bazaar of your capital on foot.
It's not the distance, it's the travel time that's an issue. If the city is big enough, and lacks magic transportation, then you've got the same issues. Likewise, just because there's an enclave close by doesn't mean there has to be interaction - even these days we've got people living for decades in a city without ever learning the language.