I have experienced this lack of AI expansion wth the TOA expansion but did not have the problem in Dreadlords.  I have played several games with confirmation that all AI playsers were set to Challenging.  In one game the Drengin and Alterins had this problem.  Dregning maxed the orbit of thier two planets with conony ships but would not expant to the many unused planets right next to their home planet.  The Alterians surendered to the drengin after a while due to thier battle with other AI players.  When Drengin took over the surendered Alterin planets, the Drengin imediatly begain using their huge inventory of conony ships.  In this case the Drengin dificulty obviously did not change in the middle of the game.  Are there any patches to fix this problem in TOA?