I turned fatigue off for my current campaign which is unmodified RTW v1.5. You have to start a new campaign for that to take effect if you do it in the preferences.txt file.
The AI definitely benefits from fatigue off when it is the attacker. When the player is the attacker, he benefits from it. The player also benefits if he uses a single unit a lot because it never gets tired. Overall, I'd say the battles are more of a challenge especially if the human doesn't overuse any one unit. With fatigue off, units fight a little longer which helps in the unmodified game where combat is resolved somewhat fast. In a modified game, it might cause units to fight too long. Battles will also finish up quicker when you use the continue battle option because routed units will move off the field faster.
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