In my experience (which is a few hundred sites' worth), there are some conflicting bits of advice in the collective wisdom you'll find from big SEO blogs.
First, remember that everything changes. A rule that was prescient in 2004 may have absolutely no bearing today (in fact, it's often the case). As Google has evolved, it's also gotten a lot smarter about things that used to ding you even though they were valid.
Second, optimizing for Google is (IMHO) very different from optimizing for MSN and Yahoo!.
Thanks to ISAPI_Rewrite (mod_rewrite for you Apache fans), I have tested just these variations over the past 3 years.
Google
Google doesn't care very much about URL structure. I'm guessing that this is because their URL canonicalization basically flattens everything out.
In Ken's case, Google won't show any preference between the following:
example.com/City/RealEstate.htm
example.com/city-realestate.htm
example.com/cityrealestate.htm
... and so on.
Google cares much more about:
1) the fact that the URL is the 5th on the home page
2) The link's text (or ALT text) is relevant to the overall content of the site
3) The link's text is relevant to the destination page
4) The Title and (ideally) H1 tag on the destination page also reflects the inbound link text
Yahoo! & MSN
A different beast, here. These guys LOVE folders. Or, rather, they really love <term> immediately following a slash. Slam dunk, home run, whatever you want to call it.
Now, there may be some relevance to these engines regarding depth, but I've successfully hit Top 10 (and often #1) with a 3 deep URL:
example.com/Illinois/City/<term>.htm
So, my optimal recommendation is:
example.com/City/RealEstate.htm
Google will follow it regardless and score its rank based on actual linkage depth, while Yahoo! and MSN will preferentially (sometimes even obscenely) score the URL.
-MattL