This is how I started with one of my settings, which I designed with exploration in mind and especially pirates (since the players would be pirates). As the campaign went on, I threw in more and more stuff that led to plot, but most of it was quickly run away from by the players. This was mostly because of trouble with local authorities (one of which had control over an otherwise-insane dragon), but at the end one of the players simply walked up to a lich who ruled a desert metropolis and got drafted subsequently. It was one of my best-designed settings, and was created entirely by winging it during sessions. My only better setting so far has been Ymaggion, but that one has had tons of development.
Yeah, it really depends on the person DMing. Some people it works for - others it falls very short. I'm pretty good at going off the fly, I've made whole dungeons that way, and stories, but as a player I've experienced some very disappointing games.