I have resolved this problem to my satisfaction. The solution, outlined in the following thread, is to adjust object and terrain LOD beyond the 200 that is available from the in-game sliders by editing the configuration file:
Melted Buildings - Community / General Discussion - Microsoft Flight Simulator Forums
I’m getting roughly 25 FPS (sometimes 10 FPS) when flying around Manhattan with “all players” and “live traffic”. It’s quite ok, but I’m going to turn down some other settings to get a few frames back. I do like the increased draw distance and lack of “melt” a lot.