In my current game the AI seems to have gone for L1/L1 upgrade, L2/L2 upgrade as you said. Then at least one other civ has gone for Might and Magic which I traded for.
Okay, for the AI researching tech's, I have finally got it straightened out correctly for the next update. I am testing it now, and it ensures that the different civ's definitely are 'steered' to go down certain tech lines over others... but I made sure that Lvl 1 and 2 techs are researched by AI first. I will add to the civilopedia which towns have what flavors of research, because since there are 3 towns of each civ (3 towers, 3 dungeons, etc), I gave them each slightly different flavorings.
Is there any reason why the Level 3 - 7 isn't a linear progression? From what you said there is no reason to research ahead anyway as the creature structures are in a linear progression in terms of building required to build them. Or is it just some structures that require previous level structures?
I am testing to see how AI researches these Levels right now. Level 3 through 7 is open to the player because some buildings need to be built first that allow others. And some later ones can be built quite early.
For example with Inferno... if you have the Level 1 and 2 buildings (Imp Crucible and Hall of Sins), then you could:
* Research Level 3 to get Kennels (it requires Imp Crucible)
* or Research Level 4 first to get Demon Gate (it requires Hall of Sins)
Now keep in mind the Level 5 and 6 buildings (Hell Hole and Fire Lake) both require the Demon Gate in order to be built... so if a player wants to get tougher level creatures ASAP they can go that route, although they will be missing out on the Hell Hound and Cerberus!
Note though, the higher level creatures aren't produced as often as lower ones, and the Cerberus has some good advantages like Blitz.
The Fortress can build the Level 6 Wyvern Nest very early! Needs only the Lizard Den

I tried to keep this the same as HoMM3 was... I will add a page to the civilopedia which gives a clear description for each town of all of this!
Inferno rocks so far by the way. Their units look badass and are a fun. Love the Gogs and Magogs!Inferno was always one of my favourites in HoMM along with the Castle.
EDIT 1: The text for when a spell is intercepted needs changing. Says "We were shot down by an enemy interceptor" or something like that.
EDIT 2: The larger cities look really good, Tom. The Dungeon cities look fantastic especially.
I agree... with Inferno I had some problems defending myself (from units low defense) early on until I was able to get Demons.
1 - Thanks, fixed this for next update!
2 - If you didn't say something about it, the old ones would still be in there!

They do look better and the cities are proportioned to each other now... I will probably add the moat graphic again in next update to the metro city size.
And I think the auto-producing times will need to be up'd a bit as well, especially for level 1 and 2 buildings.
Most of ranged units in HOMM have melee penalty; maybe it would be a good idea to give them attack equal to half of their bombardment rate?
I think disease from floodplain is still too strong. I started a new game with new patch, my capital happened to be at floodplains and it had 4 or so diseases very early. Result: much slower expansion and I got flooded by Neutral Halflings very soon...
Only problem with this would be that the AI would be at a distinct disadvantage when using such units as it doesn't know how to use ranged attacks properly.
I did give this some serious thought back when I was inputting the unit values. The problem was that in Civ 3, Artillery bombardment for the AI is IMO broken. Firaxis never fixed it! If I halved the attack value, AI would be doomed.
Now, I did consider halving the defense values of ranged unit that have Melee Penalty. This could make sense, and the AI would not suffer much from this. But in terms of Civ3, half defense is far greater of a penalty than it was in HoMM3! Perhaps melee penalty could be less, like 25%? I figure this may make sense because of this:
In HoMM3 Ranged units could make ranged attacks as long as no enemy was in a surrounding hex. So if a unit attacks a ranged unit, then the melee penalty could apply. Whereas, to deal with AI shortcomings, the Attack of a ranged unit has to be viewed as a ranged attack in a way.
Floodplains: Made note of it.. disease never existed in HoMM3 anyways... so really there is no major point of it being in the mod to begin with. I'll mess with it and likely lower the strength.
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Also, I am considering changing some of the AI start bonus'. Right now they are mostly all the same. But for Dungeon e.g. "Dungeon towns ..... act as bases from which to wage campaigns of conquest for wealth and power", perhaps they should have commercial and militaristic.
Stronghold is particularly well equipped to deal with attacks on other towns; and are the purest Might faction there is, so perhaps they should stay militaristic and industrious.
I am not sure about some of the others though. Rampart could have expansionist since they are in allied defense of the unspoiled wilderness regions of Erathia
Tower could have the scientific trait. Just some thoughts.