If nothing else, just code up something to auto-equip all AI units with the latest armor/weapons the moment they learn the tech. Then later you can fix it so they actually have to pay for them and "think" about it, if it's even worth bothering with. In my last game the Resoln could have taken me if only their Heros/Champions would have had updated armor and weapons. Instead they threw their troops away attacking my city. I never noticed the lack of stat increases, that's pretty game-breaking right there.
I have noticed, at least in 1.11, that they do equip aromor pieces seemingly at random, and I only saw a complete set on a sov towards the very end of one game. Maybe equipment just isn't getting a high enough priority, but with all the gildar you earn mid game you'd think they'd be getting around to it by then even if it was on the bottom of the list.
Hope 1.19d fixes all the OOM and CTD errors I see posted about. I really want to patch it to get the new changes now but don't want to deal with that stuff. =P
By the way, grats to SD. I've purchased two PC games in the past few years, Sins and a couple days ago Elemental. In fact, I've only bought three console games (and one was used for $10), so SD is at 2 for 5 for me overall. Pretty damn good.