This is what I've been saying for a while now. This is exactly the expected and intuitive behaviour. Moving the sovereign raises the possibility of all sorts of unforeseen problems, for little actual gain.

Hmm, I still have the save game, so let me check...

Yes it is in fact very buggy.

here's what I noticed...

I moved my sovreign/pioneer 2 stack into an area of open ground with nothing nearby.

If I had my pioneer selected, the create city button was grayed out, and mouseover would tell me im too close to another city (which I wasnt, nearest city was at least 15 big squares away)

If I selected my sovreign, it let me do create city, however I did get the message that my sovreign had been damaged and retreated to the nearest city (which was the city i just built)

Having done that though, I still had my pioneer, which should have been eaten up to found the city.

It is not a good glitch, a pioneer surviving can't possibly be better than the 1 essence you lose when you are defeated in battle and teleport back to town.