The Freys' situation is indeed problematic. Making them rebels to start off with which you have to win over or conquer as the Starks was initially felt to be the best way to replicate the situation in the books. However, that is just a placeholder idea. In the final game the Freys will likely have their own faction.
The Arryns are traditional allies of the Starks/Tullys and should have entered the war on their side in the books, but Lysa Arryn (manipulated by letters from Littlefinger) made them stand aloof. It's possible Littlefinger could have encouraged them to even attack the Starks/Tullys given different circumstances. As such, the Arryns are a bit of an unpredictable side in the game, despite their traditional allegiances.
Dorne being unable to conquer beyond its borders would be lore-correct (Dorne has the smallest population of any part of the Seven Kingdoms), but also rather dull, and no-one would want to play as them
The Free Cities will not be in the initial release, but there are plans to add an Essos-centric campaign later on, after
A Dance with Dragons comes out (which will have the first canon map of the Free Cities and should allow us to model the eastern continent more realistically). As it stands, we have too little information on the factions of the east to make as compelling a game as one set in Westeros.
The Night's Watch, wildlings and maybe even the Others will also be added later on, but for now the initial focus is on modelling the War of the Five Kings. The other conflicts can wait until we have more information.