Rack - sounds like our starting positions in chapter 3 are the same. Was the territory you retreated out of in the lower right hand side? I can't remember the name, but it started next to 2 red zones which had like 10+ enemy units sitting there which move straight into my zone on the first go.
That sounds like the same position, next to the capital. I think if I had attempted to keep control of that zone I could have been in a lot worse situation. As it stood I was able to claim that part of the map by the end of turn 3 with a modest expenditure of gold on additional troops. If I'd lost those troops I'd have had a large army on my doorstep and no means to deal with them in the short term. I wouldn't have then been able to redirect those forces to the rest of the map and things could have been much tougher.
I know I lost a lot of elvish relations because I turned the elvish princess into a meat guzzling wino! The elves were not impressed about that lolz. But since I was able to side with them on a lot of council decisions it didn't matter all that much. Although I had to say a big fat NO to some of the looney stuff they wanted to implement...
I can't account for the differences then but there must be something that gave you all those extra boons to relations.
Arrg! Another thing I forgot - the trooper's building capture ability. That would actually be pretty handy, use it to capture the defense buildings as invade a base.. I admit I'm terrible at micromanaging units... so tend to forget to use a units special abilities. I do wish there was an option to set abilities to "auto activate when appropriate" - like take the Armor's ability to do a PBAoE shock attack... that could be set to automatically go off if in range of 1-2+ enemies for instance..
I'm largely in the same position, I managed to use a few unit abilities, Shamans Charm, Juggernauts Imp Bunker Buster, Troopers Building Capture and Devastators Siege Mode. There were still a tonne of abilities I just couldn't handle though because they were so fiddly and I had so much on my plate. There's already been a discussion about this and really autocast wasn't practical but it's a shame there weren't alternate upgrades. Choose between Armour's PBAoE or an upgrade that makes it do explosive damage to enemies when it is destroyed. Shaman's Charm or an autocast dispel.