I don't see anything wrong with being labelled a foreigner; that is what we are, after all. As long as people speak to you in Spanish and not English, it shouldn't be a problem. Unfortunately, the places with the least foreigners are also the places with the least (or no) Spanish schools. Makes sense when you think about it.
In my experience, it is easier to meet people in smaller cities where they are naturally more curious about foreigners. You will also experience a more traditional (and sometimes quite conservative) lifestyle.
No matter where you decide to study, it is recommendable to take advantage of the schools family homestay program, where you can room and board with a local family. It is usually less expensive than other options, and it puts you in daily contact with locals.