I don't accept that there is an inherent lack of depth in "just in time" setting development. I don't think a setting is richer or deeper because the GM has imagined stuff about it that is not part of play.
My problem with "just in time" setting development (good term for it, by the way) is that inevitably I'll contradict myself, often within the same session, as I won't remember what I said earlier.
Players: "While in town we'll stay at the Silver Salmon, where we stayed last time."
Me: "OK, the Silver Salmon Inn is in the middle of town, giving a good view of the main market square."
Players: "Last time we were here it was down by the docks. We had to walk to the market, and Jocasta's pocket got picked on the way, remember?"
Me: "Uuh...OK, I guess? I remember the pocket-picking, was that en route from the Salmon?" ... and bang goes the flow.
Making notes on the fly is a poor option as I can't write and talk at the same time (or if I did, both would be incoherent
) and stopping every 30 seconds to make notes isn't conducive to any sort of flow or rhythm. But if I've got this noted somewhere I can refer to it on the fly and keep things consistent.