I'm kinda surprised I never thought of doing something like that with my friends.  Nonetheless, thanks for an idea I'm going to start on right away!

Your liking of the spawning really depends on how you want to play.  I let mine spawn for a while but put a plug on it once I hit almost 1300 because that is about the size I wanted for now.  I run mine to be more like a booming city, with the playable sims being the suburban folk (though I'm looking to expand apartments into a second downtown lot just for them to give a sims livin in the city sensation).  The townies serve for me as the mob of civilians you see in commercial areas that you most likely will never get to know, either because they're from somewhere completely different or just don't live in your neighborhood or work with you.  I may have to check out that townie gun though if I start to run down, because if I remember, removing notownieregen does bad things.

Anyways, some like to keep it specifically their playable sims, especially if they have a decent sized 'burb going.  Townies to them get in the way of keeping it just familiar faces.

Although it might be fun to let townies spawn endlessly at a constant rate to create a social experiment of rapid overpopulation in Sims 2.  Pleasantville populated by 10459 townies and counting!

In all honesty, the amount depends on how powerful your computer is and how many you feel alright with having.  I had almost 1300 before I plugged the issue.  I thought about actually letting it get to 1500 before putting in the hack just to inflate my neighborhood some for the hell of it.  Hell, my only scare about it was the amount of hard drive space it was going to gradually eat since I am a tad limited at the moment.  The one thing though is if you have a thriving neighborhood most of the townies end up being redundant as you have enough playable sims to make community lots feel really populated and varied.  At which point constant new townies would be flat-out annoying.

As far as I've tested, it seems to.

~600 is definitely by no means a "bad" case, though it is a pretty big amount.  My instructions are more to diagnose and catch the issue if it (and most likely is) happening, before it gets out of hand.  As far as I can tell, amount will always increase, well into the thousands.

Probably a dumb question, but is this with a neighborhood you've backed up or does it do this with brand new neighborhoods?

I'm guessing since you said you've done a clean install that you're working from scratch each time, but just wanted to check.

Other than that, not sure what to say since I've always used the default clothes selection and purchasingand have never had such a problem with it.

It seems a bit odd it'd already be slowing down due to that already, but this is the easiest way to check and see if you're being affected by this (you most likely are if you do not have notownieregen).

1: Open up your Characters folder for that neighborhood
2: If it is not there, right click on the bar that lists the list by categories (Name, Type, Size, etc) and add the 'Date Created' field (usually under 'More')
3: Click that newly made category to list everything in order by its creation date, so that the newest is first
4: Run Sims 2! (preferrably in windowed mode)
5: While playing, watch the folder.  If you are affected, the following will happen:
   A: One new file will be created on loading a family in a regular residence
   B: when you have a sim go to a community lot, on loading the lot it will generate approximately 3 new files.

If this is happening, get the notownieregen hack PRONTO!

Creative methods of community lot genocide could be fun...

That's awesome it's figured out though.  I just did a test of running a residential lot for one game day and it of course generated one new townie upon loading the lot and that was it.  The file was then also modified upon leaving the lot.  As far as I could tell, I never saw a new townie walk past the house.

Whether or not it plateaus as far as the townie spawning goes, I've been trying to actively monitor what it has been doing on my system.  First off, it seems to create a set value amount on load of a lot no matter what.  Residential zones (not counting apartments, I have not tested with that yet) creates one new character file, and a commercial lot creates 3.  Whether I ever actually see the newly created characters or not seems to be a gamble; sometimes they show up at some point, sometimes they don't.  Needless to say, if you go load a sim's house, go to two community lots, then go home; that's 8 townies spawned in that time.  If it actually stops this before hitting...oh 10,000 characters I guess it's not too terrible an issue for the average person (albeit a bit of a slowdown and a pain in the ass on going through the phone book), but do we know for certain that it's going to stop at some point or just endlessly generate upon lot load townies until the game explodes all over itself in townie guts?