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Is mesh networking limited by interference?

I recently read that the potential of a large-scale mesh networking system is severely hamstrung by interference problems, which grow as the number of nodes in the mesh increase. Is this true? What are the short-term and long-term potential of mesh networking for larger municipalities?
It has not been our experience that interference is a limiting factor. In fact, there are two key advantages to using short-haul radios in a mesh configuration. First, the mesh configuration is relatively immune to interference, since there are multiple paths available and messages can route around areas of interference. Second, the radios used in mesh configuration are low-power, and their sphere of influence is intentionally limited to a small area. By whispering to their neighbors rather than shouting, they generate less interference than their long-haul counterparts.

We see many applications for mesh networking in municipalities. In the field of Automatic Meter Reading (AMR), companies are using mesh networking to read utility meters (water, gas, or electric). There are pilot studies underway that are linking parking meters to payment kiosks. In the longer term, we expect to see city-wide "utility networks" that link together many of the devices in a city -- traffic lights, street lamps, electronic signs, etc.

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