I've got a couple of things to start things off...
The first one, I've actually stolen from DsRaider... who has pointed out recently (and I think he's spot on) that the main reason for lack of serious competitiveness from the AI is:
1) AI training troops in fortresses and making use of strategic spells to improve trained unit quality
AI isn't very good at getting the most out of trained troops by training them in a fotress with appropriate improvements and/or strategic spells like heart of fire, aura of grace etc. It's a big reason why Initiative becomes such a big factor.... the human player can stack up Init bonuses but the AI is not so good at working that out. It leaves the human player with a big edge. DsRaider explains it better then me in point 1 of this thread:
I think (outside Diplomacy) that's probably the #1 items that I'd like to see addressed/improved. It would make a big difference in terms of the games staying power if the AI was just that bit better building a stack of high quality units.
2) Get the AI to upgrade wild improvements such as the Iron Mine, as well as Shards
We got the AI to upgrade Outposts in the last patch, which is awesome (thanks Frogboy), but it would be great to get it to do the same for these ones also.
They're the 2 things that stand out for me, interested to know what you guys think. I'm sure there's some bug that's been hanging around that drives you nuts, let's hear it.