I played yesterday VP and also two units per tile mod and got absolutely smashed on Emperor difficulty. China AI had about 10 cities versus 5 my cities, as a result of it AI amassed huge armies and fleets. As I noticed ranged damage from cities and units is much lower in VP comparing to the original game, you just unable to hold the position against huge waves of units. I also got an impression that AI was cheating a bit as he really had huuge army and fleets. With the changes VP brought in the game it is absolutely impossible to hold the city with three sea tiles next to it if you don't have your own fleet. I really never played on the level below Emperor butI think now I need to try King

On a similar topic - does anyone know how AI is considering peace deals? Sometimes the war can last forever and AI doesn't want to consider peace deal at all, but in other situations AI can peace pretty quickly.
1) VP is probably not balanced with 2 units per tiles, but I've never tried.
2) VP AI cheat less than vanilla AI (in total), but the other difference is that the "cheat" is more spread through the game : it is no longer "catch up with the AI and then win", since you will need to continuously compensate the AI bonuses.
3) Ranged units (and in fact, every OP units) have been nerfed. Moreover, the AI is no longer completely stupid with its units. So if it has more cities, it will have more units, so a bigger army, so it will win the war. (Well, in practice, there is people managing to win deity VP, so some people are able to be far more clever than the VP AI, but if you begin with VP, it will not be the case for you).
4) Yes. You cannot defend coastal cities without a navy.
5) AI peace logic is quite complex, since a lot of things influence it :
+ Base logic is "they want to make peace at the moment you want it the least". So if 3 of their cities are about to be taken, they will want to make peace. If you take those cities, you will have to wait few turns to be able to negotiate again.
+ Sometimes the AI just hate you so much that it will take forever to men peace.
+ ...