Gameplay mechanic is more likely, since the player is supposed to assume the actual Windhelm would be a lot larger. Otherwise it ain't really a city, just a ridiculously small village (You also have to keep in mind that space-time is compressed x30 in the in-game world.)
The silly example you cited, on the other hand, is just a silly example. Don't try to oversimplify an argument.
"Oh, they're just lazy; that's why they're poor!" or "Oh, their people did this-and-this, so we have the right to do this-and-this."
If you've ever worked with people who live in poverty (and not American poverty; the less-on-one-dollar-a-day poverty) or even been discriminated against, this kind of talk would kind of hit a nerve.
Good, gameplay mechanic is for you. I agree that the size of the city is that because of gameplay mechanic, but I don't agree that the argument is good in regards to this conversation, since the size you imagine Windhelm to be is just that, imagination. We would have to agree to disagree.
About the "poor" comment. First, I'm not from America so I have no idea what you mean by "American poverty".
Second, I have have had a really rough patch in my life so I know, yes. I was almost without a roof above my head, and had to rely on the kindness of others to offer me that.
The conditions I lived in were not so great (I can detail on PM if you really find this interesting) but it WAS a roof above my head and a warm place at night. Was I to start complaining that I want luxury? Yeah, right. I was thankful and learned to do with what I was offered since it was offered to me freely.
I grew a "thick skin" and learned to fight and get out of that condition. I didn't moan, complain, weep nor lay down and die. If I would have done that I would still be there!