One of the game .txt files has all the city names.
I edited all the town names to include capital letters, no problems and it looks good in-game.
Find your M&B directory, and go thru mods/native and find the file "towns". Open it up and edit until you get your desired results. Save it then start the game.
Bada bing - bada boom, capitalized town names.
Edit -
The txt file "party_templates" seems to have the names for all the units. I don't know about removing the _ because that might cause a conflict with the coding. (As in, changing vaegir_deserters to Vaegir Deserters might cause the game to not read the name properly, or some other affect.)