This is a bit long -- I apologize.
Standard disclaimer: I love this game. It has been wonderful to see the staggering progress made from each successive version. Kudos to Stardock for making this wonderful game.
That being said, I feel the OP. For a game that has all the trappings of a civ-builder set in a fantasy world, this game plays more like a wargame much of the time. I've learned the painful lesson that military power is everything when it comes to diplomacy. Low military power score and every diplomatic deal is heavily favored against you, while a strong military lets you extort the AI. If the AI senses any weakness, it will pounce, and with the cascading declarations of war, you're in a pretty tough place. A serious question: What is the point of alliances? With the current mechanic of factions declaring war on you because someone they are friendly is at war with you (even if you are just as friendly as them but happen to be of the wrong allegiance), it seems the alliance system is pointless. The fact that these cascading DOW happen way before anyone gets to the Alliance technology helps reinforce this aspect.
Take a recent game I was playing as Gilden on the normal difficulty. I spammed pioneers early on to settle as many cities as possible because: 1) this is what the AI does and if you aren't careful you'll find yourself boxed in with few cities and have no chance 2) there is no disincentive to settling as many cities as you can, and with all of the increased growth options (city enchantments, city buildings), prestige isn't nearly that important any more (more cities=better economy=larger armies=what you need to do well in the game) and playing with few cities just isn't viable. I settle about 5 cities and take care of the local monsters, doing the early building phase thing. Things are going well, and then a bit of bad luck: the Infestation random event happens, and spiders everywhere. I finally get around to clearing the spideys near my cities, and I kid you not, around 10 turns later the Syndicate random event goes off. SYNDICATE EVERYWHERE. Lots and lots of fairly powerful monsters everywhere (are the size and the power of these armies dependent on game difficulty? They seemed to be a bit much for normal). Tough times ahead.
It was around this time that Yithril shows up. They have fewer cities than I do and are trapped between me and Altar with 7 cities and a powerful military. Tarth is also in the area and doing well. So far, so good. Then Yithril declares war on me because I'm weaker militarily (and it's always that – “your army is weak” “we are dominating you” “I love war” etc is all about the same thing – military power). Yithril will almost always have a stronger military. It's what they do (It is always Yithril. I never see Pariden dominate, or Resoln. Brad's AAR shows this as well http://forums.elementalgame.com/433336 ) And, for a kicker, Verga has the proud trait which makes peace deals cost four times as much. I'm sorry, Verga, I don't have the 9000+ gold you require to make peace.
And then the juggernauts come. And then Yithril's friends declare war on me. For their part, Tarth and Altar are at war with Yithril too. Despite all of us have more cities than he does, he takes us to the woodshed, but makes special care to attack me with most of his forces (conveniently ignoring the legion of syndicate across the countryside. They return this favor by not attacking him either). And then it's pretty much game over. I realize now that the proper play would have been to build a strong military from the outset, and focus research on rushing towards golems, but I hadn't played Gilden since this mechanic was introduced, so lesson learned. But the reality is that the game pretty much forces the player to do this because 1) military might is everything and 2) early magic cannot compete against might. A few-cities builder faction stands no chance. And maybe easy is the new normal. Again, lesson learned.
One aspect for me that has prevented this game from being truly epic is the diplomacy. Every diplomatic function has an exact price which kills the mystique of interacting with the AI, and this price depends on military power. I'm all for the player being given and idea about which proposals will be accepted, but knowing exactly what is needed takes some of the fun away. I would love it if they decided to not give me a non-aggression pact simply because they didn't want to, not because I could or could not afford it. Because of this system, wars are endless affairs until one side capitulates, for the most part (I suppose a losing side might occasionally have the money to pay for peace, but if one is losing the war, odds are one isn't swimming in cash).
I have never seen a game where two warring sides make peace. Never. There is no white peace when two sides haven't been attacking each other for awhile. The AI never decides that fighting three wars at once is a really bad idea and maybe declaring peace with one of them would be a good idea. I'm not a huge Civ V fan, and their diplomacy is positively schizophrenic at times, but at least wars begin and end with some regularity. I don't like knowing that once war is declared, it's a fight to the death. It ruins the diplomatic tension of the game and limits replayabilty, at least for me, and makes the game feel like a wargame instead of a fantasy 4X. If Stardock were to have an expansion/DLC addressing any of this, I would throw money at you.