Personally, I don't see how any Texas prospect could pick College Station over Austin as a place to live for four years (although, I must say I CAN see picking Kevin Sumlin over an aging Mack Brown).
Austin is a fine city--I personally think one of the best in America.
And right now, that's Texas' only card.
But kids don't pick schools because of the fun city in which it's located. Does it help? Of course.
But if living in a thriving metropolis or a culturally stimulating place was a deciding or even significant factor in a kid's decision, they'd go to Tulane instead of LSU, Vanderbilt over Tennesse, or Georgia Tech rather than Georgia. They'd have chosen Pitt over Penn. State, Minnesota over Michigan, or Northwestern over Notre Dame. The schools in Tuscalosa, Gainesville, Lincoln, Norman, and Eugene wouldn't have gotten their programs off the ground. And UCSD, Pepperdine, UNLV, and St. John's would have illustrious powerhouse programs (rather than no program or an obscure one).
Kids want to win, play in front of big crowds, and be on TV. They want to see evidence indicating a strong possibility of having all three. If they can have that in Austin are they going to choose to live in CS? As a general matter, probably not. But they're not choosing UT so they can tell their grand kids they swam in Hamilton Pool or partied balls at ACL four years straight while Sumlin and co. competed for championships.
Anyway, sorry for the rant. Just think it's odd when people suggest the best players allow bright lights and fast times to polarize their decision. In short, it's very clear why kids are choosing to settle for College Station in lieu of Austin. And you touched on it in your parenthetical.