The INS engine cannot handle it for the simple reason that the team has yet to try. Could a game engine be built that could generate massive cityscapes? Yes. How much you'd enjoy the results is something that could only be answered after having done the work.
Just sitting here for 20 minutes or so makes me wonder how much could be done. Create any number of noise fields to get building types, sizes, complexities, levels of decay, and myriad other parameters. Use those to feed your building generator and to plunk down piles of buildings.
The structure of a city could come from the pattern of sampling used on those noise fields, which could also be procedural. If you sample on a regular grid, you get city block after city block without end. If you sample using some predefined templates at various pseudorandom orientations and placements (including overlaps), then you can get a circular layout of buildings connected into a grid, next to a haphazard layout, etc. The various networks such as roads, sewer, power and such would be part of the templates. They'd all have to feather out into each other so that those networks connect up between templated zones. Think Voronoi cells here.
Done that way, the buildings wouldn't adhere to the terrain layout at all. The highest skyscrapers might want to be on top of the highest mountain, which would look ludicrous. That sort of thing could be filtered out, of course, just as trees don't grow above the tree line, etc. You'd probably also have the problem of spotting patterns from the templates. That same weird intersection is part of every circular patch of buildings. That overpass is always next to the big building. And so on.
Then there's the problem of making such a scheme perform in real time.