Frequent tech trading among the different AI factions has been one of the bigger player complaints over in the GalCiv2 forum. It can make it seem like your own research efforts have to compete against the pooled research of all the other factions at once, which is basically what's happening. Some players also felt that the AI's gave each other better deals than they were giving the player, but it's probably just the efficiency of the trading algorithms that make it seem that way.
The frequent trading also tends to normalize the tech in the galaxy, so after a while the different alien fations don't appear all that different from one another. I don't see that in every game, but I have seen games go that way when there aren't many wars limiting tech trading.
I never felt it was a huge problem, personally, but I may try a game or two with it switched off, just to see if it makes the aliens more distinct from each other. What's probably needed is some kind of halfway measure between full trades and no trading, like maybe making it harder to trade with a faction that's very far from your algnment or something. For now, as a quick fix, it was easier for the devs to just include an on/off switch in the setup screen.
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