I think it's realistic though... The closest friendly city is nearest "safe" spot that the nearly dead champion can drag himself too, and I think the recovery system makes sense for someone recovering from just-short-of-fatal injuries. The fighting-vvhile-immobilized mechanic is OK... it's representative of the desperate measures the city is taking.

VVhat's needed is an AI that thinks "I lost a city, I better reinforce the next city or I'll lose that too..." I don't really see that... I knock dovvn city after city, putting their champions back in a hospital bed, and I don't see AI factions moving troops in. It's very rare I see an AI city full of troops.

I just want them to stop popping up out of their hospital bed and going 'Haha!  Flame Dart!' shortly before my archers put another arrow in their knee.  Also I feel bad fighting a bunch of cripples.

I don't see this as a problem. 

You are fighting severely wounded champions at this point.  They've probably just picked up another injury, plus they have very few hit points.

Okay well, think of it this way, I can deliberately farm those wounded heroes for XP and inflict more injuries on them.  The AI can't do that, at least not on purpose.  So if you want to make the game more challenging, take away that cheese.

Cool idea... They are technically mercenaries, so given a choice betvveen life and money, and death, I think it's reasonable. VVorst case, you take their items and disband them or steal their souls for spell traits...

But having the unkillable and loyal champions to lead your armies is a major part of the game... Maybe make it an option? The harder levels you might need those champions to be loyal in the face of certain death...