My vote went to "1 giant world with entering houses a short load" as it works in Oblivion but even there there are some issues which should have been resolved. [The fact that cities don't really belong in the game world and and jumping over city walls causes the land to become invisible and other such things are irritating to someone used to nearly seamless transitions.]
So rather than having a buggy implementation, if it were possible to only simulate lack of levels I guess it could also end up great. However, settling for "1 start and 1 end levels" should be a bit no-no. Even Fable's small 3/4-exits-broom-closets (yes, they I think the areas were far too small) would be better than that.
...imo. ^_^
