I think the balance is still too far shifted towards having many small cities being better than a few large cities.  We have the mechanic of slow growth (i.e. prestige gets divided by number of cities), but the advantage that mechanic is supposed to give a few large cities is negated by the fact that you reach your population cap too quickly.  To take advantage of that mechanic you would have to spend all your tech tree advancement and all your building queues focused on growth like gardens, granaries, etc. to the neglect of everything else like research, mana and resource production, units, etc.  The other problem is with gildar.  Since gildar is no longer based on population, it's much better to have 5 cities with merchants rather than 1 city with a merchant and market (and you only get market if specialized in "town").  My solution?

a )  Increase the population caps so they don't require gardens and granaries so quickly.  I should be a garden away from Level 3.  In my current game, I've built a garden and granary and I'm still not to Level 3, but maxed out on population.

b )  Instead of dividing prestige by the number of cities evenly, use a formula like this so that the growth penalty is a little stiffer the more cities you have.  [(prestige / # of cities) - (2 / # of cities)].  That would look something like this:

If you had 10 prestige and

Cities     Current     New

1           10           10

2           5             4

3           3.3          2.67

4           2.5          2

5           2             1.67

c )  Have secondary financial institution's bonuses based in part on city level.  For example, a market gives an additional +2 to market for a total of +4.  Instead, that should be +2 per city level.  So at level 2, it's still a total of 4, but at level 3 it now products 6 and 4 it gives 8 and so on.  Now my level 4 city with market (8) is closer to 5 small cities with merchants (10).