It actually happens a LOT in 1.29b. Started about 7 games and in 4 one of the factions was dead within 25 turns. I had one starting location without a single tile to settle in sight too.

We don't need no city!
All they do is pollute, and waste space, and you know they are going to be filled with mindless peasants anyhow, I will conquer the world solo!

~ K

Kraxis is not the only AI having troubble settling... Both games started with 1.29 official steam beta (not 1.29frog) had this problem. I have always seen the AI having problems with settling   : not putting enough emphasis on city spamming, not being able to pick the good tiles (best = geometry to cram in more cities, then essence, then production, last is food - AI seems to have it reversed), but now it has reached new lows   (even though the supposed handicap of settlers costing population seems to have been removed).

Also another AI-crippling bug is still present: when a goody is inaccessible (either because of terrain or occupied by unit), AI clusters around and idles forever.

Thanks guys, we are checking it out.

It's actually Brad to the rescue, I pinged him about it just as he was checking in a fix.  He is on it!

I have now encountered this "bug" using a "custom" built character with the Kraxis character type. She basically never moved and never built a starting settlement. The only time she moved and that was just one square was when I declared war on her in an agreement with another faction. Which also leads to an exploit. You can use these non-settling factions as balancers to get another faction to start a war with someone else. She was worth like 400gildar. I used her twice this way and then negotiated a lesser agreement with her for peace. As long as I didn't kill her I could continue to use her for 400gildars worth of trading power. (after negotiating peace of course).