[Vodalian]

Isnt the main problem with castling, the fact that they enable a few decked up SCs to take care of the defence of an entire empire? This is of course accomplished by filling your whole territory with cheap towers, which will slow down the enemy raiders for one critical turn, before you SCs teleport/ cloud trapeze or fly in.
Losing provinces means a lot in Dom2. It is easy for raiders to set the tax level to 200 and run away, causing permanent damage to income. I think a possible solution would be to force players to oversee the tax collection. It makes no sense now that the raiding army can set the tax level to two hundred and leave the province during the same month and still get the pay and deal the pop loss.
I think mobility is what makes castling worth it. Armies have methods of moving instantenously from province to province, making it very difficult to predict what to protect. When you add to this that you can field enough of an army of national troops to protect only a small fraction of your empire ( because of upkeep ), it's no wonder that people train exclusively mages and summons and SCs. Making hordes of castles enables your own highly mobile armies to protect provinces which are under attack, without having to sit there all the time.