Did you get some negative 20 luck and near 0 relations with the undead by the last chapter? That was annoying, but mustard gas + dragon = win against anything. And thank god for the lizard's racial bonus, or else I wouldn't have had any units taking that blasted capital. [/tangential rant]
Normal (as in, no modifiers applied) is fairly well balanced for an AI vs AI duel. It may come down to how you pick your fights and how many fights you pick each turn to keep battles in regions you have poor popularity as few as possible.
For being able to select only one fight to tackle in RTS is a design feature.
