Setting and reality

How much does setting affect the course of a story, and the characters in it?  Could the setting itself be considered a character?

These are a couple of questions that were recently brought up on Jen's Blog  that have had me thinking the last couple days.  But to add to that, I've been cleaning up a house recently that had been lived in by a couple of rather heavy smokers.  Yeah, really not pleasant, but it added to that thinking about setting today.

As I was wiping down some walls, I noticed that, while at first they didn't seem to be all that dirty, except in a couple places, as I went, WOW there was a big difference in colour.  What had at first appeared to be a light taupe-ish coloured wall was in reality, really a dark cream colour.

I'm sure you can all see the horribleness of this in the present place and time (mainly the living in a place like that, and having to clean it), but what does this have to do with writing, you might be asking.  Well, if that's the result from simply smoking in the house, how clean (or really, no where close to it) should all of the houses and buildings be in the stories we write?  Especially, for those who write in historical and fantasy settings. 

Forget about the cigarettes for the moment and just picture the fires in the kitchens for both cooking and heat.  Imagine all the candles, torches, or gas lamps that would be used in a single household for light.  Even if the chimney for the fire is incredibly efficient, and the lighting (whether candles or lamps) are remarkably clean burning, there's still going to be smoke in the air in the house, still going to be soot that could be smeared around.  How much of that is going to end up on the walls of the house?

Now think about your fictional house: the walls are probably a fairly light colour, or else they're made of wood.  Either way, they probably shouldn't be as light and bright as you'd first imagine unless there is someone there actually cleaning the walls on a regular basis.

What other sorts of things have you found authors to have overlooked in terms of setting?  What details to a setting would help add realism to a story?  Share your thoughts, and maybe the next book you read won't be missing those details.