I definitely think that the roles should be random, for the same reasons as Kuru stated. Besides, I doubt many people would ask to play an ordinary villager (I sure wouldn't

).
And I would say that one village at a time is preferable.
And this is a completely random thought that occurred to me earlier today. By taking the initials of Werewolf (WW) and adding a Roman Numeral, you get the same thing as the abbreviation for World War (insert apropriate number).