Protectorate factions go inert in my experience. However they are not necessarily loyal. If you make them a protectorate, you will get an automatic peace with all of their allies. If you then attack their allies again there's a chance they will break protectorate to stay with their ally. For this reason I haven't bothered with protectorates since vanilla 1.2.

Also the A.I. financial-aid script does not take into account protectorate status, so it will keep pouring money into the Ptolemid treasury, which the diplomacy engine then sluices to you. IIRC not using protectorates was one of the EB-team's houserules for the open beta, although I am not sure it's still an issue with newer money script.