As one other note to my reply to Frank:
I generally feel like major city universities are best for graduate studies rather than undergraduate, because of the number of college graduates who already migrate to the biggest cities for work after college. Now, graduate studies are incredibly important for a university from a money standpoint, and this tends to turn these universities into incredible academic schools with very wealthy alumni bases. It does not, however, turn them into great athletic schools ... because in sports, most people cheer for the school they went to for their undergraduate degree (where they were in school for longer and of partying age) rather than for their graduate degree(s) (shorter time frame, older, often times working). Northwestern is probably a great example of this ... incredible academics, incredible demographics, God awful athletics. I identify myself as an FSU fan based on my undergraduate degree ... I do not cheer for Oklahoma despite getting my Master's from there. If they're playing, I'll watch them and obviously prefer they win over a school I have no attachment to at all, but they're not who I cheer for on a regular basis.
In all honesty, look at the biggest cities in the US, and tell me how many schools from those cities have good athletics. Obviously USC and UCLA are the two that jump out to me, both from LA. NYC doesn't have any good teams -- St. John's is the best. Northwestern is the best Chicago has to offer. Houston is a decent college athletic program, but still well down the list in Texas. Philadelphia has a couple okay programs -- Villanova, Saint Joseph's, and Temple chief among them, but none of those are eye-poppingly successful. Phoenix doesn't have anything. San Antonio -- pft. San Diego? Jacksonville? Indianapolis has Indiana. Austin? San Francisco? Columbus? Dallas FW? San Jose? Charlotte -- one of the biggest basketball states in the country and Charlotte still isn't within 2 hours of a major college program. Detroit. El Paso. Memphis does okay with their name-sake, but they're still a ways down the list of best athletic programs in the NCAA. Boston doesn't have squat. Seattle is probably the best outside of LA and Indianapolis with the University of Washington. Denver. Baltimore at least has UMD 30 miles away. Washington, D.C. has some pretty decent basketball teams around them, primarily Georgetown. Nashville has Vanderbilt. Finally we get to Louisville with its namesake. Milwaukee's best is Marquette. Portland has nothing. And at #30 we have Oklahoma City, which has an okay program.
I've just listed the 30 biggest cities in the US, and despite containing a huge share of the country's population, they amount to these teams among the greats of college athletics: USC, UCLA, Indiana, Houston, Villanova, Saint Joseph's, Temple, the University of Washington, Georgetown, Louisville, Marquette, and Oklahoma City -- and almost half of those are in the 20-30 range, while five come from LA and Philadelphia. Only five of those are in major conferences, and the A-10/Big East account for most of the rest (and thus only able to be successful in basketball). I went through those pretty fast, so I might have missed one or two, but where are these programs that are benefiting so much from being in big markets?
Even when you get into the discussion about the B1G, as you mentioned with regards to Tallahassee for FSU, it's about the STATE, not the city. NYC is the only city the B1G is trying to gain, and your demographics point about Rutgers is incredibly valid there. However, the B1G is a different animal from the MVC to such a degree that it's not even worth comparing them.
College programs historically develop best away from major markets -- likely because college students are more likely to be connected to their universities more when they're away from home, away from outside distractions, and not working. Or maybe universities outside of cities just need athletics more to drive enrollment than ones in cities do. Colleges in big cities tend to have the "commuter school" label attached to them more as well. When colleges do develop decently inside of large cities, it's often because the city isn't so large that it has other major sports programs as competition -- this is where you get into Creighton in Omaha, Wichita, Raleigh, Tulsa, Miami, etc. And despite your point about "small markets," Creighton and WSU are both in top 50 cities nationally, and as I've just shown, very few of the top 50 cities have good college teams.
Either way, the development of nearly every major college program in our country in either basketball or football disagrees with the idea that the market they are directly in is important, until you're looking at television deals which generally reflects their ability to be important in the entire state.
This is where professional and collegiate sports are different. Professional sports usually needs a huge city. College sports might just be the opposite.