My basis for comparison here is CivII. The CivIII AI is far, far, far better at war. Sure, it's still a computer, and therefore still does stupid things that we humans can take advantage of, but at least it will actually come after you with a concentrated force. In CivII you could just build a fort on a mountain, put in a phalanx or two, and hang out for thousands of years as the AI slammed unit after unit into that mountain fort. Now you can't just ignore an AI that declares war on you. They will try to pull in allies who will also send stacks of troops your way. They will rip up your tile improvements if they have no hope of taking your cities (I learned that right away... hoplites alone do not an effective defense make!).
-Arrian
p.s. The German AI, in particular, is really good at derailing a human attempt at "peaceful builder" strategy by picking a fight in 1500bc.