However, I think most people would agree that the ultimate goal for any AI is to be indistinguishable from a human player.
I find that statement seriously amusing. Are you aware that the Lead Designer of the Civ 4 AI didn't share this opinion?
I'm talking about
this lecture; notes of it are available e.g.
here.
I completely agree with the sentiment of wanting competetive AIs for a challenging game, but this has never been the case in Civ4 on an even playing field - the AI becomes somewhat to seriously to (almost) unbeatably challenging only on high difficulties where it simply cheats, fullstop. The main reason why FFH II AIs were still beatable on Deity is because the AIs themselves still had problems, but I guess as they improvem more and more, their Deity advantages should begin to shine and make a much bigger impact.
Besides, one of the aspects of an "AI being indistinguishable from a human player" - judging e.g. from my playing style - would be focussing on the biggest threat, i.e. the real human player. I think most people would agree that having all AIs always allying against the human player would make them win the game much easier but make the game experience a lot worse.
Besides, one of the best examples for AI being less competetive is e.g. in raiding in MMORPGs, for example in WoW. It's trivial for a design team to design an unbeatable boss, but that doesn't make it a good boss. That's why these bosses use "aggro mechanics", for example - they attack the tank (or whatever unit has the biggest aggro value) instead of targetting the fragile healers first, which would make pretty much any boss literally undefeatable.
That being said, Civ4 is a lot different to games like Starcraft in this aspect. Except for a few differences (like fog of war, which AIs couldn't really handle when SC was designed and which they still have a hard time with now and the difficulty level, the AI is supposed to play the same game as the human. In Civ4, things like the diplomacy system are one-sided - this is one aspect where there's a fundamental design difference between the AI and the human player.
I'm looking forward a lot towards more of the AI improvements, but I also wondered about the difficulty setings in FFH II - I have no specific examples, but I guess some of the advantages of e.g. Deity (as in, for example, the free Settler) might not be as beneficial (or more beneficial, because in the case of Settlers, they cost 100 hammers more in FFH) as in the normal BTS. What about e.g. giving them one free civics change, or giving them other advantages that are more appropriate for FFH, while taking some that don't really make sense here away? For example if Deity AIs struggle with overexpansion due to their second Settler, this advantage could be changed somehow - either removed (I actually only play Immortal because I think a free 220 hammers unit a too big initial advantage - and after all, initial advantages have exponential returns...) or changed in such a way that it's actually more of an advantage for the AIs and less for warmongering human players
.
And yes, I toned it down a lil from wat I 1st was gonna write, so it is a bit of an understatement.
