I think the M2TW AI is better than RTW, but it's still not great. Megas is definitely right that the campaign AI is much better about maintaining alliances and accepting reasonable proposals, however, it can still be very stubborn. The changed recruitment (with recruitment pools) also helps with AI army composition, because it cannot simply recruit the same unit over and over, especially with elites. In terms of battle AI, it's roughly the same, however I've personally found that the AI generals are a bit less suicidal.

Of course, the biggest improvement in the M2TW AI over RTW is that it is moddable.