Agreed. I personally play on Hard/Medium (campaign/battle) because that makes the rebels occasionally attack and besiege your cities. Anything higher than that though tends to result in unbalanced battles (Archers become terribly overpowered because they're not affected by the boosted enemy defence) and endless war on the campaign map.

Lots of people here instead try to increase difficulty by making certain role-playing choices such as only fielding historical army-compositions. For example, Romans could field stacks of principes, extraordinarii and Triarii. But most players here field the hastati too because historically not all Romans were so well equipped.

Also useful for this purpose is the Force Diplomacy mini-mod that lets you force the AI to accept proposals. In situations like you describe with the Averni this can remove a lot of frustration.

As for governments... once you develop your cities further you'll find that there are quite a lot of high-tier buildings the allied governments can't recruit. Also, the allied generals cost a hefty 500-1000 upkeep a turn. Still, in more distant regions they -are- very useful.