Nah, when you consider the area ships like the Enterprise-D can cover on the show, I think a number in the hundreds of thousands is more reasonable, besides they don't need ships in every single sector of explored space. Think of how often the Enterprise is the only ship in range, Starfleet would have to be spread pretty thin for that to happen so much. Besides Explored space is much less then the area of an entire quadrant. IIRC by TNG they'd only explored about 10-15% of the galaxy. Even when you factor in Civilian ships, I think the fleet strength is probably in the 4-6 hundred thousand range. If it were higher than that, losses like the Battle of Wolf 359 and the 7th fleet at the Tyra system wouldn't be as significant as they were portrayed to be.