The problem, I think, is simply that the world generation runs for 1050 years which is way too much. The population keeps spreading and eventually people live everywhere, which is "realistic" outcome for a medieval that lasts a thousand years I guess, but it's exactly the reason why world gen should be limited to a couple of hundreds years.
The other issue is the population growth is too big. During most of the history, and especially in the medieval, the population grew only slowly - most of the time it stagnated. A lot of the land was uninhabited because there wasn't anyone to inhabit it (if there were, you can be sure the farms would be all over like in DF). Wars, diseases and shorter lifespans kept the population low. Dwarf Fortress has wars but doesn't have diseases, malnutrition and other fun stuff that would keep most of the population from living to 80 years of age.
Third, I think that Dwarf Fortress terrain isn't varied enough - there's not enough land that would be impossible to grow crops on. In reality, most of the "wilderness" would be in places that are difficult to reach (river canyons), don't have water (hilltops), are too steep, or are simply nor fertile enough. If there was a flat fertile land (like basically all of the DF map now), it was stuffed with fields and people.
All in all, I think the DF sprawl system is good but infinished - the game just lacks other mechanisms that would keep it balanced. But yeah, Alpha, I know.