In my current camapigns as the Sicilians i've seen no problems with the ai expanding and taking rebel provinces. Portugal has taken Zaragoza, Moors took Tunis, i've taken Florence, Ajaccio, and the one on Sardinia.

The Milanese attacked Florence after i moved most of my troops out of there. The Pope then assigned me a mission to blockade Genoa to bring the Milanese back on-side. After i'd done the mission the Milanese accepted a ceasfire readily.

Early on i took Durazzo, but after annoying the Byzantines in diplomatic negotiations, they came and took it from me.

So all in all i'd have to say the ai is doing much more sensible things now, and is holding alliances much better.