Yes, this would be very interesting. I like the idea a lot. Although I think one would have to go further and have a mechanism for "conquered" civs to still be in existance, as long as it still has citizens of its type. For example, Zulu takes over Rome. Well, as long as there are still some Roman citizens in there, Rome is not dead as a civ (but not active either). If Zulu go about killing all of the remaining Roman citizens, Rome is completely eliminated, but other nations get ticked at Zulu for commiting such an act.
Also, I think the counterbalance for having large emipires in the period before (and still after) Nationalism should be civil wars. A simple mechanism where if many citizens are "unhappy" for extended periods of time, the cities who contain the said citizens would revolt, firing up a civil war.
Back on topic, as to the AI, I want it to be able to make general plans for what it wants its empire to do. I want it to (for the most part) remain faithful to allies who it has traded with for years, and hate those who've had disputes and wars over time. I want geniune allies to help you, gifting you with techs or gold and sending units to protect your territory. I want an AI who ponders whether war is worth it, and struggles to get out of it when losing, and presses the advantage when winning.