Balance aside, here is why I dislike the AI bonuses on Turn 1 (aka when they city settle). I feel like its the opposite problem of the Archer Rush.
To me, human vs AI is a competition of a human's superior tactics/optimizations vs the AI's bonuses. When the AI's bonus are ramping up in the mid game, it is up to me to have developed a superior strategy, warfare tactics, and build order optimization in order to counter. A "fair" fight.
The archer rush was so abusive because it allowed the human to flex its tactical superiority before the AI bonuses kicked in...an unfair fight.
Likewise, the AI getting bonuses on Turn 1 allows them to start a snowball effect before I have had a chance to utilize my optimizations. It gives them incredible advantages in forward settling, religion, and early wonder production...and that early in the game there isn't that much I can do to counter. Again, an "unfair fight".
Its similar to how I feel about the AI getting free promotions (generally fair, a compensation vs my superior warfare tactics) vs AI pathfinders getting promotions on turn 1 (unfair, ability to scout the map and take ruins before I could possibly counter).