I don't have a clear favourite and I also don't think any faction stands out as being stronger than the others. I think StarDock did a tremendously good job designing these factions, absolutely brilliant! The one exception is the Dead which - while probably my favourite faction if I must pick one - simply isn't balanced. I'm a sucker for the undead units and the whole faction concept, though!
I'm also in the camp that dislikes the non-magic factions. Gilden is probably my least favourite faction with their slow and cumbersome style. My custom pwnage faction uses a combination of magic and swordplay and gets the best from Pariden and Altar.
I think Pariden may be a contender for the slightly-better award if one must be picked: They have some incredible empire-building skills with the combination of the Arcane Monolith spell and especially the Scrying Pool, and they can still hold their own in combat. If the game drags on, Pariden will be in a good position to win. They're not as hot if the map is small and cramped with players - then the Empires are more likely to dominate. On a large map, though, you won't beat Pariden.
Yithril is easily the strongest and scariest faction in the hands of the AI.