The choice that needs to be created is between powerful magic and physical ability. The secondary choice should be between bonuses to your starting economy and making your Sov powerful at the start. This all needs to be separate from the faction creation options. It would be nice to see more connections between the Sov, who is supposed to be the source of your civilization, and your civilization. The Sov also needs to be more powerful at start so we don't feel so dwarfed by the champions we hire or the party of spearmen we train.
This is actually why I would like the Sovereign to give a bonus to production and research when at the capital, or even a more direct bonus when in a later settled city. It emphasizes the importance of the Sovereign to the kingdom/empire. You would still need to go and level up but it can be just as beneificial to keep the Sovereign home to help there as well. Frog talked about the game being about choices. This would add another choice what to do. Depending on the bonus. If at the capital the bonus coud be 5% to all production and research. If at another city it could be 10% to just that cities research and production. This would work great with the new city specialization. If a city is becoming a Fortress in a key location the Sovereign could show up to personally oversee in the beginning of construction. Kind of remind the citizens how important it is to get things built. The 10% production boost to just that city could really help. But the Sovereign is not exploring and leveling up, nor is he back at the capital giving the smaller bonus across the entire kingdom/empire.
@seanw3--I agree with Kongdej, great suggestions.