Simple fact is that most players want the benefit of conquest and amassing a huge empire but they don't want the penalties or difficulties of trying to administer such an empire.
All previous attempts to introduce drag mechanics have been decried by the majority of the player base as 'un-fun' and eventually removed in later editions (Corruption, Science Penalty, Global Happiness, etc).
Let's face it, most of the 'Great Empires' in history have been forged by conquest. At the very least each throughout history has had to defend itself from outside (and inside!) aggression. And each in turn has eventually fallen. But in the game, players would not tolerate having their empire 'fall'. So the benefits for conquest can't be high as they were in reality to balance out.
In any case, as mentioned, the AI's inability to defend is part of the issue but to me one of the bigger issues is that the AI does not seem to realize benefits of conquest either so it's amazingly passive past any initial rush (at least where the player is concerned).
