SnotlinG,
I think a guaranteed 12 units in auto-produce mode is too many. If someone drops out in the early turns having 12 men made there compared to 1 in normal neutrals is a bit much. I believe War2 capped out at either 4 or 8 men.
Rather than use a set number of armies (12) or city upkeep why not just let the city produce until there is X amount of strength points from the units there where X = 5+(turn count/2). So if someone dropped out on turn 1, any cities they owned would produce 5+1/2=6 (round up) strength points. If they dropped out on turn 20 it would be 5+20/2=15 strength points. That way you don't get early turn cities filling with 12 men while neutrals have only 1. Meanwhile in late game you get more defenders as would be normal in mid/late game.
Strength points then translate into units the city can build. So lets say someone drops out on turn 30. Then X = 5+30/2=20. That would be 4 spiders or 2 dragons or 10 Lt Infantry or 6 Hv Infantry. That seems to generate a better number of defenders instead of allowing 12 scouts in 1 city and 12 spiders in another based on the production or upkeep. In cities with multiple units, just let city make the strongest unit until it can't add any more then find anything else that fits under the remaining points left.
Still not sure what you'll do about cities with no production which often happens due to pillaging.
As for self-raze, it all depends on the cost. I hope it's not going to cost a lot of gold. 100-200 tops. Otherwise it defeats the purpose of using it strategically. After all, players can rebuild so it's not like you lose the city forever as you do now. Also even if I could not raze every city I'd definitely raze the ones with key production since I don't want to give away Dragon/Devil/Pegasi type cities.
KGB
P.S. Extending dropout to the first 3 turns doesn't help. Basically if you don't join till turn 3 you are hugely handicapped by missing 2 turns during which the other players likely have snagged 4-5 cities, ruins, 2nd heroes etc. The game would be far better off to extend the 1st turn join time for an extra day or 2 hoping to get a player to join. The other thing would be to not count joining for someone for/against someone's record especially for ladder play. That might encourage more players to join games if it wasn't on their record.