What do you propose to do with route flap?
While creative "regional" filtering is theoretically possible
i'm convinced the complexity involved will quickly overshadow
whatever benefits the local peering provides.
Long-distance telcos generally find it cheaper to backhaul traffic
hundreds of miles to large switch sites instead of installing zillions of
small switches.
And, no, public exchange points are not dead. They have benefits
of higher flexibility (one 155M pipe going to an exchange point
is _more_ than three 45M pipes going to three other ISPs --
the traffic is not spread equally, and there are fluctuations).
There is at least one way to make public exchanges to handle
a lot (10000 times) more traffic. But you know it already.
--vadim