I don't remember the AI being really bad in earlier Civs - especially Civ 1. Of course, I was obviously not as experienced as I am now - but I do remember being shocked and pleasantly surprised when I was playing a game on the highest level and all of a sudden, a supposed friend turned up on my doorstep out of the blue and took out my cities with battleships and tanks. I'm guessing this was because I'd recently shipped my entire army to the end side of the world to take out a mutual enemy.
Well, the biggest advantage of Civ1's AI is probably that it was played against by people who didn't yet understand AI programming well enough to peek behind the curtain.
Civ1's AI had a line in its code that literally said "If the year is 1900, and if the player is in the lead, attack him." It was very crude. But most players simply didn't have the necessary experience to evaluate an AI and attributed a level of reason to it that was far beyond the real thing. In your example, you "assume" that the AI had a good reason for its decision, when in fact it may just have triggered the very crude line of programming I quoted above. (Actually I doubt that the Civ1 AI had any concept about where the player's armies were, but I'm not 100% sure.)
Another example is that Civ1 tried to bring trailing AIs back into the game by gifting world wonders to it. It's blatant cheating, but as players, many of us assumed that the AI had actually built that wonder, when in fact there was just an algorithm that decided "This AI has fallen behind, I'll grant it a free world wonder so that it can catch up."
If such an AI were released in a modern strategy game, people would criticize it heavily. They would recognize (and rightfully criticize) that an "attack player when he's leading" algorithms devaluates peaceful approaches - no matter what you do, the AI will eventually be out to get you, even if you were partners for millennia, even if it's against the best interests of the AI. They would also identify the "free world wonders" as blatant cheating (in hindsight, it would have been easy to identify in Civ1 too, as the AI often "built" wonders in cities that had no way of providing the necessary amount of shields).
This can actually be seen in players' reactions towards the Civ5 AI, which in several ways was a step backwards to the Civ1 AI (at least on release, I don't know if and how much it has improved by now). But exactly the same things that were okay for Civ1's AI were heavily criticized in Civ5, and rightly so. It simply isn't acceptable to go back to the primitive and crude ways of AI design from 20 years ago (especially not if the AI _still_ takes a lot of time to process its actions, even on modern hardware).