Gauntlet what you are describing is a game error and has nothing to do with ExpandedFactions.
I don't know of a solution, however, based on faction mods I've done, I can say that there is a tag in custom factions preveting them from appearing in the "enemy faction" list.
I suggest that you compare the xml in the custom faction to one found in coreraceconfigs.xml, and determine what tag is only used in the custom faction. Then you can delete that, and your custom faction should appear as an "enemy faction".
I don't have access to the xml right now, but I do believe there is a tag in the custom faction that is literally called "iscustomfaction" or something very similar. This is not present in the core raceconfigs.
What Murteas described above is correct, however, it is a separate issue.