[Agrajag]

Ahhh, the noturious unknown gendered hero from HoMM.
Anyway, I don't know that much about the game (pretty much of a newbie as well, even though Ive been trolling here for a long time) but here are some things I'd like to say about your post:
1) PD (Provincial Defense) is pretty bad for most nations, its just the chaff units that get killed in a blow, you don't want a lot of that guarding your provinces (though atleast 1 is almost a must, just so you can see what attacked you). I much prefer saving my money for troops that can retake the province or protect it.
2) A strong offense is also a strong defense, since by pushing the borders in the direction of the enemy, you prevent him from directly attacking you with armies (unfortunatly, he can still use flying/teleporting/stealthy (etc.) troops to cross the borders, but while your main army can advance forwards, the second army marching to the front can take care of intruders.
3) 7 dominion sounds a bit too high for such scales, in my opinion. If you don't have good scales, you don't have to have a positive dominion score in all of your provinces.

From what I hear here, most games are won by use of magic, which means that regular armies tend to become obsolete as the game progressess, so relying solely on national armies isnt a good idea, but I wouldn't know much about alternatives with Arco, being a newb and all P=