I would doubt any highrises would creep into those residential neighborhoods. As some of you mentioned some of those old houses have been turned into small offices. Most of the homes there are large, grand, old houses. Some being historic landmarks designated by the State and City. I doubt they'd ever let that happen. Given that fact, I say build densely on the periphery of the area. And as someone else also mentioned Boston has done a great job of balancing highrises next to historic neighborhoods, most notably in the Back Bay/Beacon Hill area.
Something else is that neighborhood has wall to wall trees. A lush, old and vibrant canopy of Live Oaks, Elms, Sycamores, and other tall established trees. There's such a dense canopy of trees around there there's really not much of a threat of buildings seeming to loom over the neighborhood, even if they are a block or two away. I just don't see that being a problem.
Thanks to Flash from Pittsburgh, a forum member here for these photos. Check out his website here:
http://metroscenes.com/
Boston's Back Bay/Beacon Hill area, which contains the city's two tallest buildings of 790 feet and 750 feet tall, and the old neighborhoods which border it to the left and right in this photo.
http://metroscenes.com/boston/boston.42.jpg
Night view.
http://metroscenes.com/boston/boston.54.jpg
Of course, this neighborhood has a good bit more density than in Austin, but this is still mostly residential.
http://metroscenes.com/boston/boston.49.jpg
Killer view of 111 Huntington Avenue, an office that was completed in 2002.
http://metroscenes.com/boston/boston.48.jpg
Night view.
http://metroscenes.com/boston/boston.58.jpg