Finally, I have begun play testing this campaign system, and so far so good. There are enough tactical choices in choosing which territory to attack, that the 'Empire building' game feels exciting, and each individual battle is enriched because of it. The initial choice of capital cities is very much led by which 'spoils' you will gain from owning that city (in the General's Handbook some of the spoils are way more powerful than others), but as the campaign grows, the tactical choices open up, so that you find yourself wanting to block your opponent's territory, or complete a secret mission.
made a few minor amendments to this update, which are highlighted in red: Better definition of who is the ATTACKER and the DEFENDER, more variation in the outcome of the battle depending on major/minor victory, and restricting SPOILS bonuses to only one at a time. Also allowing capital city to be UP TO 3 EPs, if desired.