Villages aren't? Hmm, good to know.
I'll have a look back at other settlements that may or may not function properly. I'm just happy to help.
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Okay, so it isn't thoroughly done, but based on your response, I've run a series of quick tests.
First, I screenshotted the weirdness with Ft. Ayloch. I know we've already identified strange stuff, but I figured a screenshot never hurts.
Secondly, what surprised me about villages not being upgradable was the fact that it is not consistent. For example, Timberfell can be expanded normally, while many other villages cannot!
On a related note: I found a temporary workaround for the villages which don't appear to be upgradeable as per normal. If you convert it to a Motte and Bailey and then back again, it unlocks the appropriate town size upgrade.