A) I agree that the AI should use (almost) the same rule as the player when upgrading to horse soldiers. A simplest way could be that every time an AI lord goes into any fief (village or town), and there are horses sold at a medium or cheap price, and they have the money, then they should buy those horses. This would make horses rare and the prices would be higher, but that can be balanced by spawning more horses at villages. Of course this way the AI should only upgrade to horse troops if it has the required horses to do so. Note: since Khuzaits have more horse villages then others, it still should make Khuzait lords be able to have more horse troops then others.
B) I also agree that troop upgrade should need more then just gold. It could be some form of generic armor & weapon set, which the player and the AI lords could buy in the towns. These "sets" could be produced in the smithies and tanneries, and could be divided into a few categories, for example the same as the current troop groups (footmen, archers, horse archers, cavalry, skirmisher, heavy footmen). This also would make smithies and tanneries (and the required raw goods for them), more viable and make this part of the economy a strategic goal in the game. This would also slow down troop upgrades and would make upgraded troops more valuable. Note: since the actual troop armor and the "sets" to upgrade them are not linked in any way, the actual troops and the upgrade sets and economy could be balanced independently in the game.