Look at what Equadorian did rather quickly along these lines using some free scripts available here on the forum.
301 Moved Permanently favicon(www.sketchucation.com)
Its half way down that page. The general idea is he made a grid, then randomly subdivided some of it using Jim protrude script. Then randomly applied colors to it, replaced the colors with images. THen ran greeble on it. and voi-la! his city. Its pretty impressive, especially for free scripts. And yes, making a more in depth city generator is a dream of mine that I'm slowly working on.
Chris