Patch 1.8 available for download.

[Walkiry]

I have it on good authority that they plan on reducing the complexity, and textures of character models while in densly populated areas. 
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Actually they're doing a much easier thing. When there're too many people, the game stops drawing all clothes on characters that chew up so much memory and resources.

Keep that in mind if you think about running into the Dwarf capital Ironforge, where the Gnomes have set camp as well.

*Mental image should appear just about now*

;)