Well, it is probably impossible not to make situations where there is an advantage to either letting the AI control the battle or doing it oneself, but it's one thing that needs to be minimized. Balancing, balancing...
Regarding snowball-conquests, I really think very few games actually make any attempt to actually prevent this; EU is rather unique in that respect. And as such, I'm not against allowing world conquest - its the holding together of the conquest through subsequent generation that I think should be difficult (as it was in reality).
Declaring wars - most wars are declared for material gain, so this is fine by me.
Sueing for peace - lots of issues to be taken into consideration here; especially how to keep wars from dragging out into the unending.
A key thing here is going to be implementing the concept of loyalties, and the sieges of cities. More cities fell in this time period (in EU time period as well, I believe) due to treachery than from actual siege operations. Since sieges are going to be really ruinous, being able to convince cities to surrender will be quite vital. An idea is to implement something like the following: If you behave in an abnormal manner - e.g., such as fighting to destroy a Kingdom even after they have offered good peace terms (often, you'll have the chance to vassalize), then latter cities will tend to be less and less willing to change sides (seeing that you're generally behaving in an irrational and unreasonable way).
This could be one of the ways the game engine might try to slow down potential "conquor the world types" like myself.

The important thing for me however, is that it makes sense in the context of the historical period and the game (which I think something like the above would). Anything that lowers the "immersion" in the game (such as arbitrary limits on what you can annex) is a bad thing, IMO.