I may say something unpopular, but City-States were bad idea.
I think that every civilization starts as "City-State", then it is expanding and create an empire. What I would do is that every game starts with a lot of civilizations, upon time some of them succeed, some are conquered and vasished, but some weaklings survives and turns into estates with little political meaning, who can be influented by major powers. However, I would never take the chance from those weaker civilizations to become empires (<3 Nepal). Let's say, they made one successful military campaign (either unite other weaklings or defeat major powerhouse), invest in strong economy or even take an opportunity that major regional powerhouses were weakened through internal or external problems. I would connect Culture with National Spirit (? the factor how large amount of population is feeling French [example]; obviously the conquerors would have this factor low, the same empires with low culture [I think peasants in Europe didn't care too much about nationality before XVIII century, they were low-educated]). This factor, if low, would create several civilizations, when empire collapse (unhappiness or due warfare) and if high, would give you higher resistance against conqueror and morale to defend lands (spring of nations). Barbarian creating new civilizations upon time is also good idea (from single camps into "city-states", to even large empire if a huge amount of territory is controlled by Barbarians).
I would much prefer the world to be alive (more collapses and rises of empires). Let's say you got one huge military campaign in classical era, however you ate more than you could and you hardly survive as small estate, then you slowly rise to become a powerhouse again in Industrial era.
Current ciV is pathetic in aspect of feeling the world or history. Gameplay is flat, Murica friendly and linear like "y = x".
Why am I writing this

, because I am tied to the rules created by Firaxis. I am creating civs for this game.
Once more about those Settlers, I am playing huge map with 22 civs, there is not a lot of place, if City-States would take two good spots near me it would be a disaster, while the bonus would't be to impressive.
Though I may share you with two ideas I had before I started modding (they evolve upon time):
~Upon destroying Barbarian camp, you create there your own camp (cannot be destroyed). No other civ can settle city in the range (equal to the one in gamedefines). Upon entering Medieval Era, you can decide to turn those camps into Cities (if you hadn't settled nearby).
~Second is more complicated, but in general it is about creating "mega cities" or "a lot of small cities" (imagine you found a City, after it reaches certain population, the smaller city is automatically found nearby) depends on how I would develop it.
@edit
I read the thread that if somebody conquer Holy City, he should receive founder bonus. Such threads are repeating over time, but the question is, would you like this effect instead Golden Age for Jerusalem?