Well diplomacy in general is not that exciting in all TW games so far. I don't think anyone ever properly designed it, it has that definite "let's make it up as we go along" feel to it that I in fact get about the whole strategy layer (I don't know if you ever noticed rounding errors in the trade income for example when moving your governor in and out of a settlement can make a difference in your income)

Anyways, the vassal system in Civ4 is a bit better but in fact I think there you don't get enough from it because you have no financial benefits. Quite on the contrary, you even have to pay higher maintenance for your cities if you have a vassal. Nonetheless, some points about it are good, for example that you actually protect them: If somebody goes to war with either you or your vassal, they'll go to war with you and all your vassals which is a very strong diminutive to any military planning. In TW it's mainly a tributary and should be called that to be honest. You don't have much of a military cooperation except for the automatic rights of passage, alliance and trade agreements which, let's face it, mean as much as a steaming heap of llama dung on a hot afternoon.