I think you missed the point of my post, I didn't say it was impossible at 'mid-end' game. The A.I. can have a tremendous amount of cities where the player would be very...very unhappy.
I didn't misunderstand you, you're just wrong.
If you were playing on Chieftain difficulty, you could do exactly what the AI is doing and support a truly massive empire with ease.
This is how the x0.6 works. The thing to remember is that in Civ5, Happiness is a
differential. (So are Gold and Food.) That is, to use hypothetical numbers, let's say you're gaining +110 from buildings, policies, etc., and your cities are costing you -100, so you see a net +10; barely enough to compensate for city growth, not nearly enough to expand. But play on Chieftain, and that +10 becomes +50, because the 100 becomes a 60. Think that'd make a small difference in how many extra cities you could support, many of which would provide you with new luxury resources and so pay for themselves?
And think about happiness-boosting buildings. Nearly all of them cap by population; only the Circus Maximus, Notre Dame, and Eiffel Tower don't. Every other building or Wonder is limited to +1 per population. On Prince or higher, that +1 per population cancels out the -1 per population that you get automatically, so no big deal, right? But play on Chieftain and the -1 becomes -0.6, and suddenly you're gaining +0.4 per population for all of those happiness buildings. Since the base 3 unhappiness is also reduced to only 1.8, this means that any AI city of size 5 or higher will add more happiness than it costs, assuming maximum happiness buildings.
There's one last Happiness factor that hasn't been mentioned: luxury trading. Ever notice how in the diplomacy screen, you rarely see AI empires having spare luxuries? It's not that they don't have them; it's that because of the way the turn order is structured, as soon as an AI hooks up a spare resource he tends to offer it first to other AIs, and AIs aren't quite as insistent on luxury-for-luxury even trades as a player would be.
So again, those huge happiness values are perfectly reasonable once you realize that the AIs are running on easy mode all of the time. If you actually try to calculate the numbers you'll see that there's no other cheating mechanism for the AIs, it's just what I've described above.