As a player of the legendary heroes, I agree about most you have said about the diplomacy side of the game,
Currently the diplomacy system is very limited , my interaction with the AI is limited under couple of things
I can even group my choices under some if conditions and get away with it.
1) Am I able to defend myself against my close neighbors?
If no I try to sign a non aggression pact when our power ratings are close the further neighbors in a large/huge map don't concern me , sometimes I have 5 people declaring on me but no soldiers to be seen in my borders ever, The AI should declare war if it is actually going to go through with an attack against me, otherwise it is meaningless.
2) Technology trading:
I don't usually buy techs points I try to get gildar for my tech points if I am in need of quick gold, other than that I see no reason for technology trading.
3) Trade Pacts / Technology Pacts
I never try to make them myself as it is almost always very biased towards the AI. If an AI kingdom proposes a trade I will weight the pros and cons ( which is usually how much they want me to pay and is it worth my money, If they are paying I just accept) and decide.
4) Get money from the AI because I am going to attack someone anyway.
It is always good to get paid an extra 100-150 or so gildar to attack someone you are going to attack anyway.
That is about all my interactions with AI factions ( hope I haven't forgotten anything)
The main problem is I cannot be proactive with my trades with the AI factions , it is always very bad deals for me if I am initiating the deal and that destroys the diplomacy aspect for me, I have to be reactive to what the AI offers me and that is about all the diplomatic decisions I make.
Currently I am playing at the expert difficulty, so I am not sure about the situation at lower or higher difficulties. But as the power rating difference is too great in expert and upwards, I feel like I just can't manipulate the AI to do my bidding ever, all I can do is get some pocket money for my dealings.
What can be improved?
I would like the AI to not consider my faction a puny faction that it can easily destroy anytime they want and give actual deals that are good for the both of us. The trades are too effected by power rating and me being a human controlled faction I feel.
City trade maybe?
I can trade back my conquered city of that AI back for a good peace deal and some gildar, as the city will not be useful for me for the next 30-50 (maybe even more) turns anyway because of unrest penalty.
Being able to give a tribute of my resources for a peace deal and arrange this like civ style:
Currently the situation is , you got the gildar we want, okay good here have some peace until we crush you again.
Maybe I can give 1 metal per season or 1 crystal per season etc. for 50 seasons of nonaggression and peace between us. Currently I cannot make future promises to a faction, I either have to have what the AI faction wants from me or else there will be war.
Don't randomly declare war at me from all over the map if you won't go through with it
As mentioned before declarations of war must be meaningful, the factions should not declare war just because they can.
More stuff to trade around
I am not very sure about this point, the type of the game inherently limits us to the amount of meaningful trades that we can make , maybe we can trade experience, our allied faction teaching us and we can get %10 boost to our experience gained I am not sure about this much.
Random events that occur If I am friendly relationship with a faction
This can be a good incentive to keep buddy with some factions in the game.
If you ask random how, lets say a fellow traveler from the kingdom of Pariden Appears at your city and trades in your city giving you bonus gildar.
A traveler from the kingdom of Tarth teaching you the art of bows, So you make half progress in the research of archery
It can be improves to stuff like helping you complete a building faster because they already know the schematics, or giving you a selection of weapons/ armor that is unique to them.
I am a big fan of the random events as you can already tell 
I guess that is it from me now I will keep close tabs on the discussion of diplomacy as I think this is one of the things that can greatly improve the gameplay experience in the times that the game pace slows down.
