"В этом городе живёт много людей."

It's interesting to me that the singular verb "живёт" in this sentence seems not to agree with the plural noun "люди". I guess this is because it's actually agreeing with "много" in the sense of "a lot", which is technically singular?

Why "людей" and not "люди"?

"Lots of people live in this city" marked as incorrect??

I put that too

This tense is a wrong. The people live there, not just temporary are living! The only right tense is: There live a lot of people in this city.