Madison is, in fact, a pretty small city. By that virtue alone we'll never have the artistic clout of a larger city - there's simply not the population for it.
That said, there are certain things that could improve the standing of Madison as a "music town." I don't know who would be responsible for these things, but I do think that if more middle-tier national touring acts came through and were properly promoted, it would certainly help the local music scene as well. The Majestic seems to be on that path a bit, bringing in higher-profile "genre" acts that may have skipped Madison in the past. A few more venues doing that might help things a lot.
Just a thought.
Then again, what's really the goal of being a "great music town?" Is it more local act live shows? Is it more local sales? Better attendance at any shows? More artists with national exposure? Is it just being more "artist-friendly? "
I'm curious as to what, exactly, would define such a town. Austin's used as an example a lot around here, but I don't know enough about the Austin music scene to really know the whole of what that entails.