Won't the AI just buy better gear and make it that much harder to take the village? Only way it's abuseable is if nobody signs up for AI.
They get better gear, but because population much lower than in cities/towns and no walls - much harder for defenders to cap flags - with enough troops, say 400-500 armed with decent weapons, dont even need armor - you will take the 200 pop village.
But in general I think prices need to be dropped in half. I'm looking to equip a 150 man army and even buying basic axes for the 2hers (2nd worst 2her and it will be -2) will cost 600 gold for 50, another 20 voulges - 800 gold, even weak leather scale armor for all the troops is 3300 gold and then other items need to be bought. It basically costs 7-10K gold to equip 150 troops in peasant gear. I think it might need some slight tweaking.