Yes, the AI can and will use AI designs that you make for specific factions.

Related question, is it possible to edit a file somewhere so that a troop you designed is 'hide-able' and not just deletable? Perhaps moving their definition to the file where the vanilla troops are defined?

First off, this is not a stupid question, this is a rather good question for people who haven't spent tons of time figuring out themselves!

for Nibelung44: I am trying to figure it out by just looking at the XML by hand, I have happily forgotten all the XML codes and modding stuff I spent some days learning to just be disappointed, anyways

If you go into "Documents/My Games/FallenEnchantress/Units" you will find all your custom units in each separate file named by the unit name.

Both custom Sovereign's and custom units will be placed in here, and if you want to change it open it in a text editor program, like notepad.

I found a few lines when looking at the CoreUnits file, I will highlight them and you can guess and try to see what you want exactly.

now the lines I will propose I think can be put in almost anywhere, but be catious not to put it too much outside the original structure (the structure of the coreunits are different from custom units).

The commands are:

<HideInSetupLists>1</HideInSetupLists>
<IsAIOnlyUnit>1<IsAIOnlyUnit>

I think the first one is the one you were looking for, found the second and wanted to add it anyhoo I think you can also merge the files into 1 big file (Copy the text inside one file into a major file with all of the text), but I was too lasy to test this out myself , sides my graphic cards cooler have stopped working so I practically don't open games these days.

Also found a line you might want to change around if you're looking to create something more specific
<CanBeDesigned>1</CanBeDesigned>

This is switched off for pioneers, so you cannot change the design, in case you use some specific items not supposed to be on the common trained unit.

As I said, haven't tried it, but hope it helps.
(But I did know where to look )

Sincerely
~ Kongdej

Agree with this, a lot of my enjoyment comes from creating, and playing with and against, customised factions and units. Streamlining the process for the player would be a good thing, imo.

Deleting implies that the design will not be available to you in future games.  Hiding does not carry that implication.  If they are actually equivalent, SD should change the button to read "Hide" for both stock and player-designed units.

Personally, I like to keep my unit list clean by hiding anything that I'm unlikely to want to build again, so it's good to know that I can hide custom units for the current game without preventing the AI from using them in future games.  (For myself, I'm perfectly happy to repeat the design, but that doesn't help the AI any.)  It would also be nice to have the option of hiding non-designable units...