I think maybe we could take a page from Mideval: total war, concerning the castles. Castled cities are entirelly different from castles. Pretty much every large town in mideval times (as well as in warhammer) had a castle, but only the greatest Keeps actually contained the entire city within its walls. Most cities had a castle which was surrounded by an unwalled sprawl. Therefor. although i do think that you idea for castles is overpowered, you could make it so that if you want to build one you incure either :a moderate to severe economic penalty in the city or a population cap. Even the largest castles of the middle ages could only hold a moderatly sized city within thier walls.
what if we make castles act like minor cities, which can use the terrain on the 8 immediate tiles next to it? (kind of like the Settlements idea from the Kuriotates in FfH) that would mean that castles cant be built close together, they spread culture, they can work the land, they provide a good defensive bonus to units AND they cost a bundle to make. plus they add the the city count which increases economic cost 
Any cool idea for the effects?
Those things were vicious in the old rules, capable of holding one flank due to its sheer reputation... Unfortunately, my Empire buddy would roll a misfire on his first roll and ALL 9 barrells blow away a 30 unit strong greenskin or skaven army. He had the most horrific luck... (beat him everytime though, but man Empire war machines are NASTAY!). Definitely need more Empire UU warmachines. They just rock.