We are in London. A friend's DS is in Manchester and having a ball. He loves clubbing and as Decorate suggests, student nightlife is a seven day a week affair. DS is in London and his social life is much more about pursuing interests (OK, watching some world gaming championships in a North London pub, or going en-masse to Comic con) , eating cheaply and ethnically, or cooking in each others flats. The idea of clubbing, even one night a week, is beyond him.
(Actually I think the differences start earlier and that social life for many London sixth formers - though obviously not all - is different. Both because of the huge variety of things that London offers, and because "nightlife" is expensive.)
So horses for courses. As far as I can see living in halls in a large city, even if it is your home city, is fine. Large Cities have layers and the student city is very different to the one you know as a child, and the one you might know as an adult. Your fellow students come from all over the world. I doubt we see DS any more in total than we would have done if he had come home for a weekend a term, but we see him more often. He will stay for dinner when he comes to pick up an Amazon parcel, we might have a coffee together if I am passing, or his dad might go with him to a public lecture. The proximity means that he came home to cook me a birthday dinner, which was lovely, but also that he stayed in his flat over Easter. (One London phenomenon is that with high numbers of overseas students and post grads, London Universities tend not to empty out over holidays.) He also meets up occasionally with his sister and cousins, and again with school friends. There is a nice continuity.
I don't think staying in your home town is necessarily a problem, though the concern is that you then get a job there and never live elsewhere. There is a huge richness to London life and a lot for students to access cheaply. If clubbing is your thing, then Manchester probably wins out, which is not to say that there aren't great clubs in London, either on the many campuses (I have dim memories of visiting the School of Mines, SOAS, ULU and the London College of Printing, though it seems that the LSE still maintains its reputation for cool, despite the wannabe Goldmans) or commercial ones. However my observation is that modern students are expected to work very hard, and the employer emphasis on getting a 2.1, means the work/life balance has shifted.