Diplomacy is a major issue with MTW2 some of the AI shanagans is ridiculous, it seems unable to calculate a good choice based on the criteria available (force strenght, reputation, wealth).

However the model in place seems to have the potential to be a rather nice functioning system if the AI were be a bit more savvy (your example aside). If I am the HRE and the french offer an alliance and trade rights and i note they are at war with England I ask for more because the alliance means more to them then me (this is one basic premise the AI seems to miss).

An AI HRE could hurt a human France if the human is fighting the English. While the threat might not be deadly in the humans eyes, the AI should see this as a diplomatic or military opportunity, and not soely military.

The diplomacy model appears to be able to handle that, i am no programmer but if we can get some kind of bump in diplomacy AI on the harder levels that would be a fine improvement to the game.