I don't disagree with that, it's likely true in general. With your particular instance, how was Vicky doing with other civs in that match? What you're perceiving as AI not knowing how to confront you on that advantageous front may instead be a case of AI assessing multiple DOWs and underestimating the threat of a given front. Which goes even further toward your point of the AI just not understanding war, but on a deeper level: I think the AI is capable of tactics like using geography in terms of "Where to fight?", but there's a step before those simple tactics that is broken, and that's threat assessment. The AI has no clue.
They're fucking piss-poor at recognizing where to fight, though....It was just so god damn bizarre to see an AI with the most impossibly perfect defencive setup do everything in its power to not utilize any of it.
Also, Vick's such a cunt. I love her, I get excited when she's in a match. My favorite moments with Vick are those 4 or 5 turns in the early game in which, for whatever reason, she kind of likes me. I love that brief moment, waiting for her to hate the shit out of me. There's something comforting about the inevitable and inexplicable hatred of Vicky.
Same goes for early scouting and seeing Monty as a neighbor, and then 2 turns later he pops a forward settlement on you. Monty's a good friend that way.
There's something to that. The problem is there's good and bad to each. I agree that the way it is in 5 is pretty stupid, the game forces us to this point where we strip everything away but one shit settlement on an island with no production tiles, pillage everything, and leave them be. It's dumb.
Completely killing them off gives you a huge diplomacy penalty with the other AIs, so I always end up leaving one shitty city furiously pumping out riflemen to match my tanks, denouncing me, yelling at me for being friends with people, getting in the way of troop/ship maneuvering, etc. for the rest of the game. Being able to say, "Hey, I could kill you, but I'll let you live if you work for me for the rest of the game." was sweet. Really problematic with how the AI worked in Civ IV, but sweet.
However, the Vassal system was also a pain in the ass in 4 for the reasons you mention. The AI could do some stupid shit and you were dragged into that mess, and to make it worse, even though they were your vassal you'd miss out on a lot of benefits that you thought would've been there (e.g. shared research). For me, at least, that made vassals a novelty, it wasn't a meaningful mechanic and for that reason I didn't mind it getting cut out.
I don't know how they'll resolve that. It still goes back to diplomacy. There needs to be some consideration of mercy if you're defending against a DOW and, in the process of that defense, you could potentially wipe out the civ. (To be honest, this may be in the game. I'm only unsure because I haven't wiped anyone out in so long, when I do warmonger, I'm so accustomed to leaving them sitting with one city and not much else.)