No, Yu Suzuki had said Choubu was the biggest area, and is where most of the game, and side quests are.
No the 3rd area wasn't discarded, it was changed to focus more on the castle area, by enlarging the castle.
It should be noted that was stated before the change, and after the change, in addition to changing Baisha to focus more on the castle, the Choubu area was also increased from what it was originally going to be(that's probally why there weren't enough NPCs). There's still 3 areas, and their importance are unchanged, It's just scaled up.