I'm playing on immortal, raging barbs, aggressive AI and so on, but also on quick, maybe that weighs in. The problem is that they expand much slower than me, which leaves little challenge.
The event-settler-thing sounds extremely interesting. I played with Rihatz modmod that added a cumulative cost to founding citites (outdated alas), which got the game closer to my preferences but was a bit unstable. I've also seen ideas of having settlers as GP, but he main problem there was how to get the AI to prioritize them I think. But this event-thingy seems like a very good idea!
EDIT: Been playing some on normal speed instead, seems to work much better. Though I'm not really sure wether cramming the map with AIs or leaving more space for the barbs is best for the AIs survivability. Often one-city-state-AIs fight long stalemate wars between eachother, not doing much but hampering their growth.