Yeah, I don't remember the AI building SO few cities in Civ1 either - they often didn't build enough of them, though.
And I didn't think it was better than the alternative. It really soured me on Civ3. I was so disappointed and mad - I'd even purchased the Collectors Edition for what was quite a bit of money for me back in the day.
(everyone has their gripes, I guess. I hear some people really take issue with stacks of doom...)
I tinkered with the game and found a balance where it kinda sorta worked for me (I modded the rules and made settlers cost MUCH more production and more population) and I just never offered open borders to anyone. But I never enjoyed Civ again like I did with the older games.
CIV rekindled my affection for the series, but the nearly limitless modding possibilities afforded by the very powerful "SDK" played a major role in this.
Then came CiV with the 1UPT nonsense and all the system changes required to TRY and make it work properly - of course it never did - ... but I disgress.
Back to III vs IV, the main sin committed by the latter, IMO, is the graphics. Don't get me wrong, I don't think they look bad or anything, it's just that the move to 3D and animations and stuff had severe consequences. It slowed the game down greatly, even if you disable everything you can CivIV plays much slower than it's 2D predecessors.
It also made modding much more difficult - it takes much more skill and effort to produce rigged 3D models than to just cobble together some 2D artwork.
Though, by virtue of the game being so versatile and good (and thus popular), enough skilled people found their way to CivIV for all those wonderful mods to be made.
If you compare the new games' modding scene, it's not even a contest.