I loved Midgar from Final Fantasy VII. It was such a great, dark, oppressive, impoverished, bleak city. Every other location was a disappointment by comparison.
I also loved the enchanted forest around Spielburg in the original Quest for Glory. It's probably the most charming video game setting I've ever seen. It was great - you were always worried about monsters, and as the day started to wear on you actually became frightened about being alone in the forest after dark, but every now and then you'd come across some charming, magical curiosity - the spore spitting spirea, Erana's Peace, the Dryad's home...