That's true - MFCG is not well-suited for generating small towns (and for very large cities, but for a different reason). It thins out buildings on outskirts and increases the size of "blocks" further away from the center effectively decreasing population density there, but these methods produce weird results when applied to the central area. I'll try to fix it somehow. For now I suggest to uncheck the "Tight" checkbox (Style > Buildings) and choose "Complex" shapes (at the same tab) - this makes a city look less congested. Or you can try to use Village Generator which has an adjustable setting for population density.