As someone who attended a small university town for an MA program, I have to chime in and agree with those who say LOCATION MATTERS. Honestly, I was so fortunate that it was only an MA program and not a PhD.
Where you live does matter. When you don't want to do research or do not feel like being absorbed in school work, but you want to go out and have fun - location plays a key role. I guess I like urban centers where you can experience cultural life like museums, the symphony orchestra, concerts, etc. rather than relying on what types of things come through campus every once in awhile.
I would visit the smaller school, choice #1, if you have not already and really assess whether you could be happy living there. If not, don't bother being somewhere you'll hate. If you are miserable where you are, your best work won't come through.
I am not sure about the experience of others, but every single graduate student I came across in my program (and those I met from various departments) have stated that they absolutely loathed the university.
I would e-mail current graduate students (most schools have a list of students posted online). See what those students have to say and ask more than a couple of people to get a better idea of how people feel about their university life.
Best of luck!