Lifeless states can be useful. I like to keep "hangers on" alive for several reasons.
1) when they act as a buffer state against a strong rival. For instance, I had cornered England down to Mercia in one campaign with 2 full stacks of almos in scotland. England and Almos were allied and not only was England netting me a huge income in trade (we were at peace), but I was at war with the almos so with a small stabilising force I could net a profit and keep 2 factions alive to prevent re-emergence. The Almo royal family was not in scotland, but I figure I could wipe them off the rest of the map, ransom back the monarch to scotland and then turn them into a trade partner later on. Recently did the same thing with the eggys, keeping the faction weak, but alive in egypt so I can delay my conquest of the almos till after I deal with the GH.
2) taking the pope out of the game. you know if you kill the pope, he's coming back with LOTS of friends. I like to corner him in sicily, invade sicily and then retreat to make peace and thin his flock. then with a small pinning force I can keep a trade partner and keep the pope from being a threat.
3) end game trade. near the end of the game it can be hard to find someone who doesn't actively hate you, so turning a profit can be hard especially if you went ape buying mercs, building and going overkill on large armies. Sending an AI faction leader to an island and stranding him there can net you thousands which will buy lots of swords.

There are other less practical reasons, mostly I just like the challenge of cornering my enemies, making them neutral and neutered, but the practical strategic reasons are mostly covered above.