Didn't see this mentioned elsewhere (probably missed it, but...), I'm able to start building construction outside my borders.
http://dl.dropbox.com/u/5475789/BuildingOutsideBorders.PNG
In the pic my city Navaalima is in the upper-right (blue city border). My borders are red, to the west are orange borders, and to the south are purple borders. I was able to place a lumberyard to the south-west, below the mountains, in purple's territory.
After the building was built the borders moved:
http://dl.dropbox.com/u/5475789/BuiltBuildingOustideBorders.PNG
I've also been able to do this with the 'lost library' along the mid-west coast.
I don't know if being able to start construction in another's territory is intended. Seems it shouldn't be possible, but that's up to the powers-that-be.