As a game balance thing this is well and good, but this is simply false:
> No monarch would ever lower himself to swear fealty to one of his own Duke.
It was not unusual for monarchs to hold fiefs that owed nominal allegiance to a person who held a title lower than that of the monarch. This could cause problems but generally was OK because you'd take care to avoid really problematic arrangements, and the fiefs involved could be quite small.
In your "ordinary" case of an unbroken line of Kings, it wasn't really an issue, because princes were given "clean" titles already controlled by their families. But anytime you had a King who had been something else first -- Richard III and Henry IV come to mind -- they had pre-existing titles. Even if they handed out those titles to someone else (as would appear to be smart) they probably still held minor fiefs on the Baronial level since those were tied to real-world geography rather than more malleable political boundaries you'd get with Duchies and Kingdoms.
In fact, this is one of the things that makes feudalism so ripe for a game. If the Count of Blunderwyne serves the Duke of Scarlett but suddenly becomes King of Genfland, he is not going to give up his old fief and he is also not going to automatically usurp his former liege lord's Duchy (or whatever was over him but under the King). The county of Blunderwyne still owes fealty to the Duchy of Scarlett, even if the new King isn't going to bend the knee to somebody who in turn owes him fealty. Might be a smart move to hand the county title to your son and avoid the problem entirely (Henry IV did this with Northampton) but assuming everybody was on good terms, you could get around it just by appointing a seneschal to handle the county for you and avoid any awkward bowing of higher-ranked nobles ot lower-ranked ones.
But rulers most certainly did hang on to pre-existing titles, because the low titles (Baron, BM's 'lord') are the ones that actually have direct revenues rather than relying on middlemen.
