As for having people use the badlands more, maybe not make it free, but perhaps you could buy day/week/month/year passes if you go in and out of the city often.
I like the idea of malnutrition and dehydration being taken into account but I'd take it a step further and instead of dealing damage to the player it should reduce their effectiveness. Making them slower, lessening their stats/skills in an ever increasing penalty. Eating wouldn't reset it but start a replenish up to the point they are back to their full effectiveness.
Maintaining one fed and hydrated would keep them at peak performance for X time depending on their endurance, the higher it is the longer you can keep your stats without food and drink.
But all this has to be done in a way we won't end up killing/gimping all players and even penalizing those that don't RP every day.
Should we kill people that log off for a few days/weeks/months because they haven't eaten? Should they wake up gimped so much that they will crawl everywhere for the next couple of hours even when they have eaten the instant they logged on?
The players that do log-on but don't get out to RP every often though.. The people that just get their UE and idle off or log back off, they should need some reason to leave their caves or invest in refrigeration units.
We have all these lovely dynamic foods now, the food availability and diversity could increase by like a billion percent easily using ingredient variations.
Hunger should also probably produce messages on some hunger ticks if you go so far, with them becoming more frequent and more invasive as you get further. Maybe even with random bouts of unconsciousness at it's most severe?
Places to stay can come with hydration/nourishment IVs for a little extra, so you can stay nourished IC even while disconnected for days on end.
And as far as negative effects, have levels of hunger, thirst, and sleepiness.
levels go up by one every hour, or more levels and increments could be added, it's just a rough idea.
Every level that goes up can diminish your stats by a set amount, based on endurance. Damaging the character is a cheap mechanic, but lowering max health at higher levels would work fine.
Just my two cents.