1. "Evil" factions don't have merchants, I believe it's becouse of the fluff. There is only one diplomat, and that is for player if hes playing Empire. This is becouse AI won't do strange alliances/wars, and player can for example still give regions, or gain victory conditions in some cases.
2. Not much. Alliance lines are drawn, but there is some scripted alliances.
3. I believe I saw thread about it in bug-threads section..
4. Check this, looks like lot of fun, haven't had time to test it yet

:
http://www.twcenter.net/forums/showthread.php?t=323770
and HP's great hotsead-mod:
http://www.twcenter.net/forums/showthread.php?t=320437