Yep. In this version, minor faction towns are limited in growth. I'm not saying that this is a good mechanic, but that's the way it is (for now).

No problem. If I'm not mistaken, I think I remember a mod that was going to expand the functionality and scope of minor factions. You may want to search the Mods Forums if you're not happy with the limited role they currently play in the game.

Granted, I'm just getting back from some drinks... this might be wishful thinking on my part.