I've been getting a feel for the game playing on the normal difficulty level. Two full games and I have seen the AI both attack and be attacked by monsters as well as complete certain quests/events on the map. Relias (The red guy, I think that's his name.) even wiped out one of the large elemental lords and settled in the area it had been wandering.
It's either the A.I. are attacking and killing each other, or the mobs/units are randomly disappearing for some odd reason. I forgot to check his cities after I took him over to see if I could find the trophy. Anyone know where that would be located in the city menu?
One thing I have never seen, however, is AI beast/ruffians/monsters attacking and sacking cities. Maybe that occurs on higher difficulties only?
Either way. From the sounds of it, it could use some tweaking.