I think perhaps cities should either have a base value dependant on size (+1 gold/wood/etc per size) or that buildings should have a base value as well as increased percentage value.
Also you could increase the overall influence and resource range of larger cities to emulate a more Civ-style sort of gameplay. IMHO advanced structures like barracks also need to increase recruitment speed drastically. As of now, yeah, it's definitely worth plopping down 10 cities to have ten units building.
IN the XML files you can see that before cities used to cost essence to build, I think that's a spectacular way to price them. Honestly I don't even think that's neccesary, a flat gold/materials fee would be fine. You might also want to increase pioneer build times and cost. Then there -would- be the same sort of 'time' penalty for building extra cities.