Well, the problem with the current Theatre AI is that it don't grasp the concept of keeping a strategic reserve. It station "Reserve" divisions directly on the border where they are annihilated on first contact.
What the AI (or any human playing the game for that matter) should do is to place non "Reserve" Garrison units in defensible terrain to slow enemy advances down in any initial surprise attack and keep reserve forces away from the border so they have some time to prepare after a war is declared. When a country places divisions directly on your border there should be a threat indicator and it should be possible to raise the mobilization laws due to local threat depending on the number of divisions that are put on the border, this is something that could help in the game.
As I said the AI don't keep any strategic reserve forces which make any sort of breakthrough impossible to stop. It is stupid to put all divisions on the border unless you outnumber and intend to attack your opponent, even then it is mandatory to keep a small reserve in the interior of your country.
During peace (even when the threat levels are rising you should only put a small number of units directly on the border unless you can defend it properly with fortifications and enough army units (which must be mobilized). Keep the majority of the units back until they are needed and shield reserve division in the interior of the country until they have gained enough strength to be committed into combat.
I think that it is quite hard to create a very good AI, but I do have hopes that PI will evolve their current AI and that it will be quite good in a couple of months or maybe even a year.
Another problem are the fact that the player are using the game rules to know when to withdraw forces from a front and Zerg the opponent on another front, such as players do with Germany. You attack Poland and then most people withdraw their whole army and invade France within a couple of weeks, knowing full well that Soviet will not invade because their neutrality will not allow it yet. The real Germany could not rely on such Intel and neither should you as a player do these kind of moves to keep things in perspective. If you try to act more realistic within the game you will sort of handicap yourself and the game will automatically be harder. Simulate a break in the war between offensives to mean that your top leaders need time to plan for the new invasion etc... this will all make the game more pleasant in the end for you.