The moderator will have to play all the AI factions, and try and make them interact with the other players as much as possible. For instance, the Venetians may wish to destroy Milan, and so ask the HRE to divvy the lands between them, but the moderator would be playing both Venice and Milan, so he'd have to do his best for both factions.

The only change I was considering was whether it would be possible to make avatars be able to defect to other factions, so that players can have extra scheming to do, but I don't know whether that would be too difficult/impossible.