From my experience (and what Strategus allready showed), players are usually rational beings. Any door open for "diplomacy" will allways come down to either "one big faction dominates everything" or "two big factions fight against each other", the number and form of these alliances might differ, if there is no attractivity not to do so, it will end like that.
Both scenarios are incredibly poor and completly unfitting in a medieval game. Diplomacy in Europe during the medieval times was incredibly complex, due to the enormous amount of semi-independant factions (feodalism and decentralisation)
If there is no rational reason to splitting a big faction, it won't be done. Most people care about winning and having advantages, only a few roleplayers will try to bring some spice by making "wrong" decisions. If the best is to be loyal, they will be. If the best is to be disloyal, they will be disloyal. In a game like Strategus, making an ally is allways the best option. It should not.
The game has to be like poker, not like chess. In other words, if we want diplomacy to be spicy and complex, we need to close and hide the info, to create reasons of attacking each other, to motivate both aggression and treason. I think it's essential for the game to have this unique "medieval" feeling of super small realms fighting each other for idiotic reasons.