Bad neighborhood wouldn't be safe. Safety before anything.
I would set up the crampy place in a very sheek modern way (the furniture with this style is less clunky and makes space look bigger).
Yep
Can't stand bad neighbors so yeah...I can live in a small place.
yes it sounds strange .. but I have to agree with Hareem .. :p
I just cant live in a bad neighborhood. I like my kids to play outside with neighbor's kids, like to leave my cars parked unlocked on driveway, my postal company leaves parcels outside the house. I just cant do that in bad neighborhood.
Re: What would you rather have
A reconstructed neighbourhood ( once badly reputed , now being reconstructed ) is a good short term option. The risk is no good schools around , gangsters around etc , but the home will be nice and spacious … you just have to look out what sorts of people have moved into the close by homes ..
Eg , I am considering a house these days, its a regenerated neighbourhood, most people who have bought houses around are young families , professional people , no students or benefit takers , there is a police station just three streets away , the ensure that the area is safe … people dont let their kids go haywire in the streets …
so it looks pretty ok , nothing dangerous .. with time there will be shops and schools etc and the area might develop into something really nice …
I think if its such a situation then ideally no harm in making it a long term option as well .. 
Re: What would you rather have
small places have never appealed me. Bigger place yes, let the neighbours live on their own. thats it.