As you've discovered, it is impossible to compete directly. So don't even try.

One option is to focus on economy and just buy in all your tech, then rely on superior shipbuilding skills and organisation to overcome the fact the AI will turn out ships much faster than you.

Another is to go the diplomacy route to avoid being attacked (and buy your way out of trouble if you are), and look to pick up scraps when a strong civ attacks a weak one. Get your transports down to the front line and sneak in to take planets the strong AI has already opened up for invasion. The weak civ has its hands too full to be fighting back. This is still tough work because you'll need to outnumber the AIs substantially before you can compete on a level footing.

Yet another is to ramp up the population growth bonuses. Because the AI doesn't manage its invasions all that well, you can make your planets unconquerable. At worst you might have to ferry people around to replenish worlds that are frequently being invaded. Transports are way faster than attack ships so you can do this in safety.

I'm sure there's plenty more valid tactics. I'm equally sure that none of them rely on taking on the AI in a "fair" fight...there is just no possible way to even match them in research, even if you build nothing but research labs on every tile and have 100% spending in it.

Personal opinion, but I don't find any of the ways you can win on suicidal to be much fun, so I don't play at that level. With the "fair fight" strategies and tech trading off, masochistic is more than enough for me!

Oh, one last thing...are you using 1.3 beta? I think the AI bonuses on suicidal might have been turned up even further.

The question I have is what possible strategy can counteract this kind of advantage? It's clear people are beating suicidal AI's. Sometimes they even complain about how easy it is. I'm just not seeing it. Any clues? Please?

It's simple, as has already been said above, how can u compete with the AI's massive bonuses? Answer u can't! U need to follow a strategy that involves those bonuses working for u.

Let the AI do your research for u, then u get it via conquering his planets, tech trading or espionage (I use all 3), the only research buildings I build r on bonus tiles and which ever planet I use as my tech capital.

I concentrate on my economy, production and population. Those feed my war machine, so I can take from the AI's what they have built up with there huge 200% bonuses.

Here is something that I thing would make an alliance victory more difficult. Currently, when you make an alliance, the relationship slider goes all the way to the right. I propose that instead the relationship bar should fluctuate as normal, with the addition of a positive "alliance" relationship modifier. If your relationship starts to sink (about warm), then you will have to renegotiate your alliance. If it goes down a lot (to about neutral), then the alliance should fall apart entirely. This would make bribing your way into an alliance much harder, and would now your ally will complain if you try to crush them with influence. In addition, as you suggests, the player needs to hold the alliances together for a certain number of turns.

alliances are quite useful against AIs who cheat. I've noticed that colder relations won't even give you, say, Starship defenses for Doom ray. (a hyperbole to make my point). But this brings something up. I've noticed that those at war with you (who, I would think, should have an embargo on everything but diplomatic stuff) won't take a peace treaty, even if I surrender to them. And I mean that literally- I gave them all my planets (including a class 22 gem!), all my techs, all money and influence, both my trade goods, and all my ships in return for a peace treaty. The drengin would not accept it.