Q1: Have you ever faced a significant setback in your campaign, where your faction became significantly weaker/smaller at some point than it was previously in the same campaign? If yes, how did it happen? Was it sudden or a gradual process? Did settlements revolt? Did you suffer military defeats? Did you abandon indefensible settlements? Some other reason?
It never occured "directly". The only reason this happens is the betrayal by the allied RK/Rohan, or the defeat of RK/Rohan and thus loosing the buffer between me and Harad/Dunland. This is also a result of caring too much for my allies, loosing troops in a desperate trial to save them. So, it's more of a gradual process, involving being overpowered by a superior military. And I do abandon indefensible settlements.
Q2: What reasons would you consider acceptable causes for campaign setbacks? Would, for example, an artificial revolt when your faction reaches a certain threshold be considered fair/enjoyable or a cheap trick? Would a weak faction leader negatively affecting all other characters be considered a fair cause?
Internal difficulties would be the most acceptable cause. Revolts, widely spread plagues, the loss of a (close) ally, natural catastrophes, the death of a great leader, confusion about the line of success.
It shouldn't be obviously artificial of course, and also as unpredictable as possible.
Q3: Do you enjoy suffering setbacks during a campaign or do you want to always make forward progress, either slowly or rapidly?
I hate setbacks! But I enjoy challenges, if you get what I mean.
No, seriously, the mid and late game phases soon become boring. I almost never finish campaigns.
I prefer slow progress in any case.
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Q4: Have you ever lost a campaign? If so, why did it happen? Did you face a much stronger/larger faction that was impossible to defeat? Did multiple factions gang up on you? Was the campaign set up in a way that it made victory impossible (eg starting you in huge debt next to strong enemies)? Did the AI receive very large bonuses? Did the AI outsmart you (j/k)? Did you fail to manage your economy properly? Did you make avoidable tactical/strategic errors?
I never actually lost (stopped playing before that happened), but yeah, I went down this road. AI stack spamming on H and VH is a huge problem. Most important reason is that sooner or later everyone fights the player. Sometimes the enemy's army is simply to powerful (Dunland vs RK). Strategical errors are, trying to help your ally and wasting money and men on this effort.
Most difficult campaign though was Carthage in vanilla. Surrounded by enemies, stretched out provinces, weak units.
Q5: Would you accept that certain factions simply have little chances of victory due to their starting position or their maximum possible development level or would you expect every faction to have at least a moderate chance of victory? Would you consider the AI receiving significant financial/military bonuses fair or unbalancing?
Small factions should have no chance of victory, and should only be able to survive with the help of other factions.
The morale bonuses the AI gets on H and VH are fine. The huge financial bonuses are ultimately useless and only lead to the nuisance of fighting five or more battles per turn.
Q6: Do you enjoy there being a real chance of defeat in a campaign or do you prefer knowing you will eventually win, even if there are setbacks in the process?
The possibility of defeat should be present.
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Q7: How many settlements/armies do you usually need to control in order to reach 'critical mass', ie the point in the game where it becomes impossible to lose without trying to?
About one army for each front, plus the reinforcements (the units that travel between the training centres and the front to resupply the army with men). That is about 3.5 full stacks, of which 2.5 are fighting.
For settlements this is difficult to say, it depends on their quality. RK needs Emyn Arnen or MI, Adûn needs MT. Rohan can do quite ok with her starting territory, but gains the upper hand ones capturing the two closest Dunlending cities.
Q8: Do you actively try to slow down your own progress or otherwise handicap yourself (eg with house-rules) in order to give AI factions a chance to develop?
The AI can't develop. Period. The only way for the AI to "develop", is taking settlements from me, which in turn will make it impossible for me to win. Once the AI suffered a few major defeats, I usually try to agree on a ceasefire. Thus I can focus on another frontier and the AI can take a breath. Stupid AI of course declares war again the very next turn.
As a matter of fact, there is no "balance of power", esp. on a pretty crowded map like FATW's. You either win, or you loose, the turning point is rather delicate. I tried to not steamroll Adunabar, after taking Emyn Arnen when playing RK, but the AI was simply unable to hold ground.
Q9: Do you continue to play a campaign after you have reached 'critical mass'? if so, at which point do you stop playing?
Once the major goal, defeat your most imminent adversary, is achieved and my position secured, I usually stop playing. I do certainly stop once the AI starts throwing dozens of full stacks of Harad Footmen at me. -.-