Sometimes, Valencia gets overrun by moors, only to be reconquered by... THE FKING CAPET himself.
The French Capital was Tunis in my last game.
Wild speculation: I think the issue with French going south is because it's the most sensible thing for the AI to do. To the east is the Emperor of Doomstacks and to the north is england, your more historical target. The problem is, the AI doesn't really care about english holdings on the continent, because again, the english are stronger than the muslims. And even if it does care, it only regains the continental posessions. Ever seen a french invasion in England?
The AI is probably a bit too smart. Why look for conflict among those equal or greater your power? Would be interesting to know why France didn't fight the Muslims in reality.