I'm going to buck the trend and disagree, on principle, that there is a limit to how much an AI can challenge a player without cheating. A game operates on a set of rules and constraints (in the case of a TBS game, typically a lot of rules and constraints), which computers are exceptionally good at following. Things just go south because we impatient players don't want to wait 20 minutes between turns for the computer to fully evaluate every facet of strategy ;) We just need
Impurator
On the topic of the save game load times - would it not be an appropriate "quick fix" to, on load, populate the cities with empty/non-graphic improvements, and kick off the regeneration as a background thread alongside the other game threads? This way the generation can replace the "empty" improvements as it gets to them, and load time cuts by 95%. I know that I, personally, would put up with cities magically popping out of the mist in order to load my game that much faster :) ...
A guard tower (exert area of control and units inside attack anything entering it) could be a neat mod project. I'd use that mod. Is it technically feasible?
Bust out the spell that turns a square into desert (I forget what it's called, barren land perhaps?) It sucks mana, but clears the trees faster than any logging crew.
Flood and Earthquake both destroy an enemy city pretty effectively, in separate but equally entertaining methods. I went on a small rampage and annihilated 5 towns with 5 casts :) A similar effect may be achievable via any map-mod effect (perhaps even putting the map back the way you found it).
I really, really like Rabenhoff's idea of population functioning as an interconnected system. If you extend the system to include foreign powers, it also elegantly solves the "enemy AI creeps pioneers into every crevice it can find between your influence" issue. The pioneers would set up shop, build a few houses, and then decide that their city sucks and beat tracks for the goliath metropolis with insane prestige 6 squares over. Instead of being a pain in the rear, the pione
In modern iterations of the Civ games, the "other player sneaks a town builder through and builds right in the middle of your kingdom" issue gets stymied pretty reliably by the culture system (their city will just be swallowed by your influence, and then you can destroy it). In Elemental I've gotten around the issue by rabidly seeking choke points and just never signing non-aggression pacts with anyone. It would be nice to be able to "influence out" someone creeping up on your bor
The best way within currently gameplay to deal with ridiculous quantities of random creeps is to just keep expanding your borders, since monsters will not spawn inside of "civilized" territory. Yes, this means yet more towns that you don't care about, but it's possible to completely shut them out of your lands. It's quite possible, if tiresome, to expand your way to making monsters extinct. Strategic use of Town Halls to expand your city radii helps with this strategy.  
The "selected" in SelectedAbilityBonusOption is most likely referring to it being a singular value - that is, you have to pick only one. So the xml that you've posted is going to just pick the last SelectedAbilityBonusOption listed, which seems to be what is occurring, from your description. Disclaimer : conjecture on my part :)