I don’t think there should be gaps between buildings, though that should be matched by the provision of good windows at the front and back of each apartment.
Also, I love seeing a building / people living their lives out the window; I don’t see why that’s so terrible. I went to Museum Dental recently (within Museum House) and was able to see into Exhibit, and I loved it. I’m sure I’d still be bothered if my view was eclipsed by such a building, but I also love the presence of nearby urban life outside a window, and, anyway, it’s an inevitable part of living in a big city.