To be clear I have never said (or even hinted) that game play is broken, however there has been a rather large chorus asking the current diplomacy system to be improved. Having a more robust diplomatic system (i.e. choices and options) would only enhance the game, and it sounds like you agree in principle. While there are a lot of great possibilities to improve diplomacy, my discussion was only focusing on the surrender term aspect.
The benefit of a formalized surrender process allows for players to deal in a nuanced manner with the AI. Currently you have to smash an AI opponent, take lots of land that you don't want, and grind them in to a bloody nub before they will accept peace. When peace is offered it is a binary process: Yes or No. There is no re-adjustment of borders or any other options based on a system of terms. A process would allow this to happen.
For multiplayer (which is mostly what we have been talking about) the process creates a framework for players to use and understand when coming to peace terms, AND it allows for a wide variety of diplomatic options that currently don't exist at all. The meta-game (the road to war, objectives, alliance building/breaking, short and long term goals, threats, general negotiations, etc) is unchanged, and remains vital to long term survival. Surrender terms don't change that at all.
It sounds like your biggest point of contention is the ability to surrender unconditionally, is that correct? If that's true, I respect your opinion, but we can agree to disagree on this point.

I have found many players to have the diplomatic subtlety of a teenage boy with a hammer...and everyone looks like a nail!

They are looking to find the next victim to smash... If that is how they want to play that's fine, but that is one benefit of being able to unconditionally surrender. Losing an entire province (or possibly more), gaining aging tokens, forcing my "Hannibal" to be exiled, and paying reparations (not to mention swallowing your pride and the ripple effect) are not easy consequences to simply accept based on my unconditional surrender of a single war. OTOH it can allow me to fight another day, plus it reflects the diplomatic reality of the time period.