I do hope they don't outright remove the functionality, though.

I really like that once you have well and truly broken their backs, you can finish and turn your attention to more important matters.

Yeah, that's almost exactly what happened in this game - I didn't have Master Scouts (playing as Yithril) but got a really strong starting position in some riverlands with four decent city sites and relatively weak monsters, so I soon had a strong economy and lots of troops (who didn't cost too much maintenance thanks to Verga's Warlord ability). Only I've been trying not to abuse surrender so instead I just bullied them for tribute for a long time while exploring the tech trees and building up my cities, until Tarth picked a fight with me and my relations with all the kingdoms took a hit.

Oh absolutely, I love it, but just think that it should be subject to the same rules as peace treaties, only more so, so that the AI has to be truly beaten before considering surrender.

At the point I declared war, Markin himself was leading two armies right through my territory towards Magnar, and his military power was about 100 less than mine but still the second best in the game, so he was hardly a spent force.

Yes, that sounds about right. I've made it a self-imposed rule that I have to take the enemy capital before forcing a surrender, just so that it doesn't feel like abuse.

I kind of like this, but I wouldn't want any to surrender too quickly, and the last thing I want to see is mass-surrender outbreaks like the ones that come up in GalCiv II if there's a big power imbalance (I've seen two or more players in that game surrender on the same turn with no immediate threat). Come to think of it, has anyone seen the AI in this game surrender to another AI? That would be cool, and frightening.

But I do kind of like the idea that some factions - Tarth spring to mind - would be particularly resistant to surrendering, and others might be better than usual at persuading others to join them. Looking back to GalCiv again & its ethics system, it would also make sense that AI players would be more willing to surrender to "nice" powers than "nasty" ones - a hero like Relias or a diplomat like Karavox might make a convincing offer, but I'm not sure anyone would be in a rush to become vassal to Verga or Magnar, who would have to conquer by force instead.

Then again, my ultimate wishlist would include the cities of a surrendering power having a chance of surrendering, rebelling and joining another faction closer to their ideology, or going it alone as minor powers, rather than just being erased, but I expect that there are practical constraints on that sort of thing. Likewise for a "Brotherhood Without Banners" faction to pop up, based on the number of troops left behind by defeated powers & fighting against the remaining kingdoms and empires. But the minimum I would ask is simply that the existing mechanic is fixed so that it isn't too easily exploited by the player - it's just too tempting to skip the war entirely, even when I know I'll enjoy the game more if I don't!

Perhaps the Demand Surrender option could only come available if you have 4 or 5 times the power rating as the enemy.  It could even be harder for some combinations.  Like Verga probably wouldn't surrender to anybody make his 10 times the power rating for any opposing enemy.  But perhaps Karavox would be more willing to surrender to Magnar (x4), but not Pariden (x5).  Not sure how that would work, but it could add something to the surrender.

I played one game where I was Yithril, and I was at war with Altar, Resoln, and the Tarth.  Those three kept switching alliances, but needless to say the expansion part of the game took a pretty much stopped as the four of us duked it out.  My main battles were with Altar and Tarth since they were both on my borders.  All four of us had a power rating from 200 to 500 or so.  With mine in second behind Ceresa.  I finally got the edge on Altar, and destroyed Athica.  Low and behold on the other side of Athica was Pariden.  I had completely forgotten that Pariden was part of the game.  They had been isolated by a land bridge and a pretty powerful Altar Kingdom.  Pariden had a power rating of 20 something.  I would have rather just demanded her surrender than wonder over the land bridge just to waste 5 turns walking over there and back.

I hate surrendering if that means they cease to exist.  A Surrender that causes them to be capitulated/vassalized, makes sense, but one where they lose all their culture and identity is silly.  If they are going to be annihilated either way, they should fight to the death.

I do agree with this.  The surrender is just a time saver.  You lose all the their cities and you get a vassal with the limitation "broken spirit" or what ever it is, making them next to worthless.