You know, having to use coastal areas would be pretty limiting, and not a bad choice and would create choke points.  I'm cool with that, lets do that.  Better than no water travel at all by miles.

I'm not sure how but Master of Magic AI created boats and loaded units on them. They also crossed water with flying creatures, water walking, and using towers to cross into the other plane and back again. The AI would even know to cast water walking or flying on units to enable crossing. Again, have no idea how but the AI was smart enough to use those methods.

Diplomatically, the AI doesn't know the difference between humans and AI.  

Are we going to get units going onto boats though in some form or fashion?

I don't think it's a deal-breaker.  One of my favorite RTS's of all time didn't have naval stuff, but navies are important, and something does feel missing when they're left out, even if they're a massive AI pain.

Will the AI try to go through other ZOC's, or evaluate whether it should try to?  Will the AI punish another player or lower relations with someone who lets other units go through their lands to attack them?  Is ZOC passage a simple open borders treaty or a case-by-case basis?

Lots of questions on this one from what's been said.

I would hope to see boats in the next expansion. It could even be the theme of the expansion. But right now they are probably not thinking of adding anything new unless something is broken and needs to fixed. Else we would be waiting till next Christmas for the beta. 

It was his idea to do it that way. 

The fact is that from an AI point of view it would be much easier to program the autoboat thing because you just basically have to tell a unit to move from point A to B, just like over land. With dedicated transports you have to have them build a harbor, build a boat, send the right amount of boats over to your army, load the boat, move the boat to the right spot, unload the boat, and probably send the boat back. This also has to be done in a way that doesn't cause armies to stand around for 100 turns waiting for a boat that isn't built yet, which means the AI has to plan ahead. Not easy to program I would imagine and full of possible glitches. Why would loading a dedicated transport with an entire army be any different then loading an autoboat with an entire army? Why would it be bad? How would you do combat/quests on water if every boat could only hold 1 unit? If your worried about navy being to easy you could always require them to have a harbor before they can use transports.

Here is a thread where boats and stuff were recently discussed.

Actually, I've never WON a game in Master of Magic

The first time I played it (like 6 months ago or so) I choosed Impossible with 11 Death books and got destroyed by big A.I armies....

Tried two or three more times and got killed in the same way again....

Lowered to Hard, choosed High Elves and survived for 50 turns or so. The lifemagic chick makes peace with me so as to prevent me to take her cities. After 20 turns or so she "doesn't see much point in the peace between us" and takes my cities and capital with two normal units and a Paladin!   Was absolutely chanceless against that powerhouse of a unit....

Some day I'll return to Master of Magic on Hard and will win. It just feels incredibly old & outdated....

On topic

The maps look great. I love the chokepoints. That will make things really interesting. I like that design.

The map upwards with the spot in the middle with only two entrances is also really good.