If you haven't seen the web enhancement for the 3.5 DMG, there's a lot of useful ideas there. The idea is that you can break a city down into neighborhoods, and there are lots of suggestions for various businesses given the nature/wealth of the neighborhood. http://www.wizards.com/default.asp?x=dnd/we/20030719a
Can't go wrong with a warren/casbah/old-town/shuq. Just take one of your "large building" spaces and describe it as a mess of alley ways, shanties, covered markets, housing, etc., from which strange smells, boistrous sounds, and few souls eminate. Maybe it is a ghetto for refuges from the war, or for the war's scapegoats.
I would think that a city's population would actually swell during a war, as refugees from the outlying villages and farms moved in to the better defended city. This is, of course assuming that the city doesn't become a dwarven Stalingrad.