My theory on the German nukes is that they did not have the capacity to use them. I think it was an AI bug (they researched the ability to nuke, but not the proper delivery devices). As for the surrender, I have no idea how he was able to peace individually. Germany does not do 'peace'. I was tempted to revert back a save because it gave a bunch of territory I held in France to the enemy. The final peace treaty was an event though - I could not find a way to do it within the bounds of the game.
I think the AI in my game was a combination of two AIs, with DAIM installed first and something overtop of it, rewriting some files. That copy of Doomsday had been lying on my hard drive for a very long time.
I could not gain enough organization by the time I hit the Pyrenees - by then the tide had turned significantly in their favour. My troops were demoralized, disorganized, and under-equipped. Coupled with a renewed attack campaign on my supply lines - it was almost impossible to recover.
I do plan to eventually continue the AAR, but between the mod and my civil engineering program, I just have not had the time to play.
Edit: 4000th post: I cannot thank you guys enough for your support throughout the game - the AAR is nothing without the readers!