IMO, the AI is one of the weakest parts of the game at the moment.  If the AI & diplomacy were improved substantially, and then some of the bugs and other minor UI improvements were made, the game would be fantastic.  Right now though, watching the AI play has made me not want to play anymore.  I guess I could play on the hardest difficulty, but I prefer to play with AI that are on an equal footing, or at least a similar footing, and play well without having insane bonuses.

Diplomacy is almost a total loss.  The AI can apparently break "unbreakable" treaties on a whim, it showers you with gifts when you're winning (further boosting the player, causing the AI to 'submit' using more gifts), it endlessly requests aid when fighting other AI but doesn't acknowledge your help when you provide it, it declares war on you when your faction power is low, regardless of how strong your military actually is, and resource-for-Gildar trading has been bugged since game release, making it impossible to trade for >100 sums of cash.  

Outside of diplomacy, the AI is weak, but not quite as bad.  The AI has a bad habit of retreating heavily wounded units in tactical combat when facing ranged units, even though this inevitably only leads to their troops being shot down while they run away.  Considering that there's nowhere to retreat to, I'm not sure what point there is to this behavior.  Tactical battle AI never uses any formation other than a very simple line, and enjoys immobilizing ranged units.  The computer also doesn't build many mounted units, even though they're key to winning many late-game fights (if you are using trained troops).