Wow...a thread with programming humor from saber cherry and a mister T reference!
Honestly I think the Dominions 1 AI was pretty good and difficult for anyone who wasn't a master player. The main things I noticed human players have over it are advantages due to things dominions 2 is fixing...namely elemental abuse and patrolling.
Tatical AI was good too...it's just everyone notices it's failings because it's controlling their units as well as the enemies.
Although an improvement in not shooting the one militia in the middle of your army would be nice...but it sounds like that's been worked on.