well, in AoW2, because wizards can controll maore then 1 race (you could in AoW1, but it was a bit different), we will still have, say, humans fighting humans. And since it is the winners of the war that write history, those losers are the "bad guys".
I would like to see different cities of the same race favoring 1 wizard or another, or cities fighting to be more independant, though. I guess this is all simulated by cities rebelling against you, and how strong of a garrison they start with/respawn when they rebell. doesnt quite capture it in full detail like you have asked for, but its pretty good.
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maybe in an update we'll see (for example):
even though julia the peacekeeper has a great relationship with humans, and their cities join her when ever they can, that one human city in the highlands, though independant, still rebuke her, and will not side with the elves!
when julia over throws them with her collective military might, the population seems unhappy, even rebellious. Production suffers. people move from the city (possibly starting a new village near by?). Rather then seeing her happy cities consistantly producing units early, the units produced there are often quite late! More and more human brigands, ruffians and raiders start to appear around the city! those same human ruffians even accept to join with the orcs (whom most humans hate), just for a chance to win back their city!
yeah, it would be really fun.....