The first thing I wanted to ask is how competent is the AI at using magic?
Not good (and it never will be), but not terrible. The AI will cast spells when it has the units to do so and valid targets. The problem is mostly that the AI isn't good at getting any of the mages beyond level 1. Warlocks are tier1 casters and don't have any offensive magic; they won't do anything until they get a chaos mark, which requires expensive late-midgame techs.
Other wizards will be slightly more accessible once we lower the costs of literacy and education, and endload those costs onto Arcane Lore.
Also, with bombardment from archers, I feel that 10% max is too weak
I disagree, I think the 10% for archers is pretty good. If you want more than that, you need to use the highly limited siege units or magic. Remember as well that a 10% reduction in base strength from damage also reduces the value of all the other promotions as well; a strength 10 unit with combat 5 is normally strength 15; with 10% damage it is only strength 13.5.
Archers are already pretty good city defenders, if we start increasing their bombard then they become too effective offensively as well.
Also, the core stats of the various units are going to change significantly in the next patch, where units will become more specialized against other unit classes.
A long time ago, when I was last writing on the WH forums, I mentioned the idea of some units being able to Ambush
There are some proposals for ambush type effects around, but nothing has been implemented yet. Your proposal doesn't seem like anything that the AI would ever understand.
My proposal (easy to implement, the AI will kindof understand) is this:
"Ambusher" promotion; unit gains the "Stage ambush" spell and the "Reveal" spell.
"Ambushing" promotion turns the unit invisible, grants hidden nationality, gives +1first strike, and is removed after combat.
"Stage ambush" spell: takes 2 turns to cast (like FFH bloom). Unit gains the "Ambushing" promotion.
"Reveal" spell: removes the "Ambushing" promotion. (AI will never cast this spell).
As you suggest, the ambusher promotion would be limited to a handful of recon-line units.
Finally, Ive been playing as either highelves or woodelves and this is becomming really annoying - elves get totally done over when it comes to sea battles
Naval battles aren't really implemented much; the mod generally doesn't work well on water maps much.
Frigates shouldn't require the cannons tech; this is a bug that needs to be fixed. High elves should get a ship of the line UU that doesn't require the cannons tech.
Elven naval mastery is mostly represented through the Seafaring leader trait.
Wood elves aren't really that great in naval combat....
Thanks for the feedback, always much appreciated.