Loss of a city even if rebuildible is still too harsh
I actually like seeing monsters being... Hard, evil, rampaging, killing cities as punishment even if you can't beat it.
That said, I don't like the land is blasted, making that perfect spot die just makes me sad 
Also half of the problem is...
How about when a computer wipes out a lair by building next to it, that monster attacks that AI? Does that make sense? No of course not! It should run completely accross the map after the player, because the player is mean and plans to steal it's vegetables! ><
You know, solved by this, monsters actually attacking the "land-aggressors".
Sincerely
~ Kongdej