Oh my god, the Sea Beggars are incredible.

What map/game settings, if any, exist to get AI to actually build a navy? Please tell me I'm doing something wrong...

I think you're doing something wrong! I've seen the AI (Mongols, I think) build literally over a dozen basic sea units when they had only two cities, which I had to capture with privateers and then allow to be destroyed by even more Mongol sea units. (Better they destroy a captured caravel than my Privateer!)
 
AI using Sea Beggar wolfpack:

Spoiler :
uPg1G.jpg
 
That looks like such a fun map to play, I never get maps like that.. what map size/type are you using there?

One of the rare Standard-sized Small Continents that isn't a Pangaea in disguise.
 
Can you attack other units and cities, without starting a war? (As in, they will not know who sent the ship.) Like a Privateer not flying your colours.
 
No. Privateers generally flew their country's colors when they attacked (they did occasionally use different colors to get close, but that's a little different). When Francis Drake attacked Spanish ships, everyone knew it was the English attacking and, given the Spanish Armada, I'm not entirely sure the Spanish didn't view themselves as at war.

On a more practical level, Sea Beggars are obviously Dutch, so hidden nationality would make no sense.

In reality, Civ5 is actually more accurate here. It's just Civ3 and Civ4 that confused people into thinking that Privateers fought without flying the colors of their nation.
 
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