A recent thread at theRPGsite entitled, "[realization] I might be better off without prep," propmted a few responses around the blogosphere
I think of my prepration time as 'prepping to improvise.' I can't detail an entire game-world, or game-universe for some games, so I'll detail a few obvious locations then focus my preparation on what I need to know to differentiate the cultural and natural landscape the adventurers may discover in their travels. From this I can draw things like npc characterisations on the fly, and from there I'm simply reacting to whatever the adventurers do.
In my experience, successful improvisation comes from knowing the setting well, not in terms of where this city or that river is located, but how the inhabitants of this area differ from the inhabitants of another area, in their outlooks, lifestyles, and subsistence, then bringing that out in response to the actions of the adventurers.
This informs how I run my Flashing Blades campaign: how does the outlook of a noble with a small estate in Languedoc differ from one in Aunis? I don't need to know every valley of the Cévennes or beach of the île de Ré to create a (hopefully interesting and distinctive) characterisation of each.
I also prep random encounters in advance of actual play. For me random encounters are the 'living setting' - I spend time thinking about the origins of the encounter, identifying the motivations and methods of the antagonists, and so on.
For example, a randomly generated 'bandit' encounter becomes rebellious Huguenots in the Midi foraging for supplies for the duc de Rohan, or ragged, half-starved mercenaries returning from the Holy Roman Empire and resorting to brigandage in Picardy, or chauffeurs roaming the pays of Normandy looking for victims to capture and ransom. In this way there are no 'generic' random encounters; each is a reflection of the game-world where the adventurers are standing at the moment.
Flipping this around, at the table I tend to improvise consequences more often than content. Rarely do I have any idea where things will go in actual play, and that's the way I prefer it.