From what little I've tried of this, the best route seems to be preparing reference material for a given area beforehand that should mostly cover anything the players will get themselves into. I've had one campaign begin in a town of my own creation that had established NPCs and a general landscape. They were free to chat with people within the town and explore up to a point (they were only level 1 anyway). In a different campaign, I used a previously existing but otherwise not too detailed town (Telflamm) to create the premise and had material for when they chose to travel to a destination. The traveling wound up taking up the session, and I was able to then prepare for the next session since I had their goal and the new general area to work with. When it comes to their characters, I encourage free-form but only up to a point. My personal view is that characters should remain within the general framework established by the Player's Handbook, and should be carefully reviewed prior to playing to avoid game break abilities or features. Except for the Goliath with 30 feet of reach incident, this has been a good pattern. Hope this helps