They already covered this in the FAQ - there are some "bugs" with the game that are known and are unfixable. In M2TW engine every city is considered to be a walled city (I think) so even though some cities have no walls the engine thinks they do.

Also you're running the wrong version of the game. Uninstall everything, delete the M2TW files from C:>program files, restart computer, install M2TW + Kingdoms and patch to 1.5.