I, like most people, really do like a lot of what Dark Avatar has to offer, but think there are a few issues that could use a solid bit of improvement. Espionage is one of them. A lot of what I'm about to say has been borrowed by other posters... I tried to compile what I've read and what I think and come up with a combined solution.

First, the issues:
 Placing a spy allows you to view the planet for free. You don't even have to place the spy, just have a spy and click on the planet with the spy icon.
 Micromanagement (place spy on specific building of specific planet) dissimilar to the rest of the scope of the game.
 Agents have a one-track mind… only can hamper buildings use. No way to just "peacefully" gather information on an empire.
 No Spying Tech Tree. Not much to spies, especially when compared with the rest of the items/actions in the game.
 No way of detecting who did the spying, hence no repercussion of spying. I can (or the computer can) spy one of my "friendly" or "close" empires and cause them great pain without having to worry about lossing any status with that empire.
 Currently the diplomacy screen shows all techs they have, so there isn’t much of a need to spy on an empire to discover what techs they have and what weapon (and defence) they appear to be concentrating on.
 No way of detecting who is paying off who to fight you. It should be hard, but not impossible to figure out if your ally is paying someone to attack you. Again, no repercussions for you actions.

Second, the combine idea:
 On the diplomacy screen, some techs should be top secret (only displayed if you know about that tech through spying). An example of a top secret tech would be some of the more advanced weapon tech (if they have level 3 in all weapons, but level 6 in Mass Drivers, only show upto level 3 in all weapon techs) or some of those tech that they deem as strategically valuable (but not all, only ones they would benefit from hiding).
 When reaching very high levels of intelligence on an empire, you should know if they paid, or got paid, to attack you (or somebody else). At lower levels of intel, you should at least have a chance to know.
 New Tech Tree branch off of Diplomacy (or new tree all together)
1. Basic Espionage: Allows basic espionage to occur. This branches off to 3 sub-trees: Information, Sabotage, and Counter
2. Information Branch:
a. A three part Information Espionage tech: Improves the performance of spies (harder to catch, harder to determine origin if caught, more information gathered). Last part of tech allows building of Information Training Spy Center
b. A three part Disinformation Espionage tech: Allows, then improves ability to assign blame for Espionage affects to other specific races
c. A three part Technology Acquiring Tech: Allows and then improve ability for stealing technologies
3. Sabotage Branch:
a. A four part Disruption Tech: First part allows spies to hamper production on a given planet (social, military, or research). Second allows spies to hamper production (or effect) on starbases, mines, and trade routes. Third and four improve effectiveness of Disruption efforts.
b. Civil Unrest Tech: Allows you to decrease the moral and influence of a given planet.
c. A four part Sabotage Tech: First part allows spies to attempt to destroy buildings. Second part allows spies to attempt to destroy military unit. Third and Four tech improve effectiveness
4. Counter Espionage Branch:
a. A three part Counter Espionage Tech: Improves ability to detect, catch, and determine origin of foreign spies. Last part allows for building of Counter Espionage Center.
b. A three part Civil Obedience Tech: Allows for spies to "spy" on own citizens and increase moral (by "controlling" dissidents… maximum increase to 60%) and increase effectiveness of Counter Espionage. Has a negative affect on population growth and research. Each progressive part increases its effectiveness and reduces its negative affects. Last part allows for building of Interrogation Centers
c. A three part spy neutralizing Tech: Allows (and then improves) ability for spies to kill other spies (while spying on foreign empire).
 For the placement of spies, have it done on the domestic spy panel, rather than on the map (but still show on the map where your spies are). They can be placed on a specific planet of foreign races (not on specific buildings). When you place an agent, you assign them their role (what empire they are pretending to be from, whether they are gathering information, disrupting research, stealing tech, destroying military, etc). They can also be placed on a specific home planet to conduct counter espionage (either normal counter espionage or civil obedience, if that tech has been researched). All starbases and military units are associated with the planet that created them. All mining outposts are associated with the planet they are supplying.

And there it is. Probably left out some things and didn't cover other... what do you think? It would really make this game so much better to have an improved espionage system.