I play on expert or ridiculous with 8 opponents and the AI does quests but they leave all goodie huts and defeated monster liars untouched littering the landscape in my games.

I have noticed since the 1.7 patch that any level above challenging sets the AI on the annoying path of pioneer spamming the heck out of the map. Most of my games have half the AI players with 15-17 cities by turn 120ish. Now that would not be a problem except for the fact that all these AI cities are low level and stay that way most the game. All I have to do is go from one to the next with my Sovereigns beginning stack and roll right over them (boring). 

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I found that in v.1.7. there is<QuestingPriority>0.0</QuestingPriority> instead of <QuestingPriority>1.0</QuestingPriority> which was in 1.6.  this is in CoreAIDefs file. Do you have the same?

1.7. also features new threat estimation scale. Perhaps this is the reason why AI loses its units (not only heroes) too much.

I played several times with 1.7. and also was disappointed that AI was so silly.

If I set <AIPriority InternalName="GoodieHuts"> to 5 then AI is even more mad with trying to attack every monster. May be 2 instead of 3 will save AI units better?

Perhaps it's worth to raise <AIPriority InternalName="SovereignProtectionFactor"> to 4 or 5.

It is frustrating how the patches always seem to be 2 steps forwards, 1 step back.

I'm playing testing at the minute, not sure it it helps but will keep on eye on the issues you mentioned above and post some feedback here.  From what i've seen so far though, I would agree that AI seems to leave a lot of goodie huts and quest locations behind... but I can't really comment on if thats changed in 1.7 because I haven't played beyond early game for a while.

In LH 1.6 and previous versions, the AI players used to clean up their territories of weak and medium quests. They'd do strong ones occasionally and deadly ones very rarely. They pretty much don't bother anymore, probably too busy getting their heads handed to them by those adjacent monster lairs. Now it's worth sending a solo champion to reap your neighbors untouched quests, get their Panca Archers and Ophidians and skyrocket your fame score to Elemental's moon. As for the untouched goodie huts, monsters now tend to leave their lairs, roam around and strange things can happen to them (ie getting killed by the Denizens of the Wildlands for example).

It was indeed a race to get to those quests but I'd say it was fun to prioritize triggering them before the AI could. I will confess that, once or twice, I had scouts stand on quest huts to prevent anyone from getting to them before me.

I've seen it on occasion, but it's very rare.  I think it is much rare now that it used to be, like maybe a few times in hundreds of games.

Hardly worth "giving up on the game" over.