Castles in Medieval 2, can be converted into cities.
I've done it many times when in need of extra funding. Before a certain settlement level, you are easily able to demolish a castle and to turn it back into a city. So it's possible, even probable; pre-game to run a script to turn all castles back into cities, then remove the option of turning them back into a castle.
Also: I'd like to dedicate this thread to any other M2TW related questions because I've had extensive experience (played Grand Campaign as Holy Roman Empire, finished campaign by 1200 AD (turn 120ish), and thensome - final ending was got bored of playing in 1300 A.D, when I had captured 75 regions and defeated the Timurids).
I'd also like to endorse your choice on picking M2TW as the official engine for EB2, because it's a wonderful game, and a fantastic engine.
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