Valid arguments, but there is more that can be added (pro and con.)

Having a decent water supply and some sanitation should reduce squalor. Inhabitants who are accustomed to baths, are less likely to tolerate filth at home. You gave hospitals as a real world example. Hospitals should also have an impact even in a rundown city. They are not limited to treating only the symptoms, they also prevent the spread of disease by dealing with outbreaks, and providing some basic health education to those who need care. If the city has no hospital, better off citizens are more likely to leave...while those that stay might have no choice and on average be poorer or in dire straits. That increases squalor. Squalor should also be a reflection of what type of citizenry the buildings encourage.

I doubt that CA has everything tweaked quite the way they want it with the settlement engine. In other areas they've already said that the Marian reforms are happening a bit earlier than anticipated. There are unit stats that clearly don't match the graphics (no shield, wrong shield, wrong weapon, no armour, etc.) I figure they still have some tweaking to do.

Another thing I've wondered about is distance to the capitol. If I upgrade roads or add ports the "effective distance" should be less. I should see a boost in public order as a result. I've not watched this closely, but I've not seen this happen yet when I've checked.