I'm all for the "Demand Surrender" option with the AI's; it brings a way to a quick and decisive end to a war and eliminates a faction without having to expend any more resources. The problem here is that the AI seems to offer their surrender too quickly or value a peace treaty too highly; several times the AI has surrendered to me while they would only accept a peace treaty offer that is heavily in their favour. The image below would be an example.

http://img684.imageshack.us/img684/1383/96745039.jpg