I believe that they're basing this data on stats collected by the census, so you have take the city as defined by the census bounds, which aren't necessarily similar to common conceptions of what area is 'in' a city.
They should make the size of the bubble smaller to only cover the area of the city like you are saying.
http://www.trulia.com/home_prices/California/San_Diego-heat_... breaks it down better, my domain knowledge of SD ends there, I couldn't tell you whether they're showing an accurate pic of what constitutes most people's idea of San Diego.
The circle is definitely scaled correctly though, the ratio of area of the circle to population (1306300 people per 1809 pixels, or about 722 people per pixel) is within the margin of error for my numbers for new york (about 662ppl/pixel), and LA (about 725ppl/pixel).