I've modded the palaces to provide a +100 defense bonus and it's worked well.
At the very early stages of the game only one city isn't too bad if the other civs only have a few. At the higher difficulty levels the AI builds settlers quickly: Just one city can become multiple cities again dismayingly fast.
But, true, knocking a civ back to 1 city is something they often never really recover from. OTOH, it generally means you have an implacable enemy until you can muster enough force to wipe them out. So the palace defense can even be a significant deterrent.
As a player who enjoys settling near another civ, quickly wiping them out and thus claiming 2-civs worth of early-game land rather than just one... I've found the increased palace defense a good change. I've had some very enjoyable games where the guys I "rushed" very early in the game held on and came back to cause me significant headaches later.
I don't, btw, think increasing the palace defense is a cure-all of any sort. And adjustments to the strengths/bonuses of the units might be a much better solution. As things are now, though, I think it's a real improvement.