Nikis, we've had this conversation before, in the other thread, but it's a very central question to this project (and I guess in extension to the mod itself, but it's very probable that you guys will come up with a different answer to this question), so it's worth discussing this again.
Generally, it boils down to the question of flavor vs performance. Should an AI who has good relations with you attack you if they can only benefit from it? That is to say, what should motivate the AI's actions, the narrative of the game or the final goal, which is to win?
There are two extremes: one is the hypothetical LAN game with a bunch of mean-spirited guys who don't know each other and only want to win (because to be honest if I know there's a friend in the game, I'll be less (or sometimes MORE

) likely to attack him), the other is a kind of game that could be turned into a pulp fantasy novel, with all races behaving properly and good guys being good and bad guys being bad etc. Let's call the latter extreme "roleplaying" and the former "playing to win".
I don't think that any of those extremes can be what we want. If you look at Vanilla CIV (where the same applies, but to a much smaller extent), you can see that Firaxis has made a number of decisions tending toward the roleplaying end of the spectrum. For instance, the AI modifiers (you razed one of our cities etc) seem to recreate a human player (I for one do get pissed off at another player in a game and will want to get back to him for attacking me and so on, even though I realize this is often a stupid strategy, especially because it is predictable) or at least an intelligence at the head of that other state that keeps grudges etc.
In the interest of full disclosure I'll admit that I personally want the AI to perform as well as it can, which means I want the end result to be as close to "playing to win" as possible. I do realize however that there are people who would want the AI to be closer to roleplaying, and that this is doubly true in a fantasy mod, so I don't think we'll develop exclusively toward "playing to win". I see how the roleplaying version can be fun, and in the current version of my xml files, I'm flavoring strongly for roleplaying (mainly because the stuff you can do in the xml cannot really make the AI *much* stronger; to be a stronger player, you have to be aware of the situation in the game, and the xml always applies to same, no matter if, for instance, someone's approaching you with an army of mounted units or not).
My two main arguments against roleplaying are these:
1) it makes the game a lot easier
and
2) it makes the game more predictable.
These are closely related. The game becomes easier because you can much better predict what the AI will do. Also, I can imagine that there will be many exploitable behavioral patterns. For instance, assume dwarves like other dwarves and hate orcs. Now imagine that from left to right on a narrow continent there's an evil orc (AI), a good dwarf (AI), and you, playing dwarf as well. It is conceivable that in an AI environment that focuses on roleplaying it will be very easy to convince your dwarf friend to declare war on the orc even though the orc is much stronger than the dwarf. After your "friend" softened up the orc, you wipe out your friend and with the addition of his cities to your kingdom destroy the orc as well.
An optimal solution would be to have an adjustable roleplaying setting: turn it up high and the AIs will behave as you would expect these races and leaders to behave in a fantasy setting. Turn it all the way down and it's every civ for itself. I don't know how feasible this will turn out to be.
Also, if we want to keep the game competitive, there should be a mechanism in high roleplaying games to punish and reward the player for roleplaying his own civ. In the above example, the player should be punished for declaring war on another dwarf whom his people liked so much. This punishment could be unhappiness in the player's cities, for instance, or random military units abandoning the player etc. Reward could come in the form of additional happiness, more money, etc. We could take it as far as an evil civ's citizens becoming unhappy if their leader does not declare an easily winnable war.
Additionally, leaders could have a "reliability" stat; the higher that stat, the more likely it will be that they behave "realistically". You can all guess which leader would have a very low reliability stat...
If the adjustable (think: slider

) roleplaying setting won't work, we can at least release two different sets of XML files: one with strong roleplaying flavors and one without.
Speaking of XML files, that's what I should go back to now.
[edit from deep within the XML jungle] Some of the flavors in vanilla ffh are really strange... why would archery be preferable to the science-minded? Why would Animal Mastery have a Growth flavor?