I agree, Trip, that the way corruption has been implemented in both civ2 and civ3 was just a band-aid to limit over-expansion. That said, though, we shouldn't go 'throwing the baby out with the bath water'-so to speak.
The fact is that, like it or not, corruption is a fact of life-especially for democracies, and some form of corruption model SHOULD be retained in civ4.
What should be done to improve it, though, are to do some of the following things:
1) Break corruption down into 3 core components-Crime, Waste and 'Decadance?'.
2) Crime and 'Decadance', within a city, should be more factors of overpopulation, wealth, lots of contraband and overreliance on Luxury resources to create happiness.
3) Distance should have an effect on crime, but that distance factor should be mitigated by increasing technology. For example, the 'Wild West' was VERY wild in the 19th century but, by the 1920's its crime rates were really no worse than anywhere else in the USA!
4) Waste should be the result of small cities and new tech improvements. For instance, a low population city probably can't make as efficient use of resources as a larger city (economies of scale?!), and improvements are often inefficient when they are first introduced-but improve over time (like coal power or solar cells, for instance!)
So what can reduce the various components of corruption? Well improvements and small wonders should still have their part. Other things would be a balanced population, improving technologies and increased legalism/decreased libertarianism. The main point is that corruption would no longer be a 'bandaid' fix to overexpansion, but a decent model of the social issues which a leader ACTUALLY has to deal with!
Yours,
Aussie_Lurker.