Dukes are never going to have the power to dismiss lords upon their whim. When you make a lord (or your predecessor), you are granting them the title for good, not 'until I say otherwise'. Remember, BM is not a historical simulation, but a game that must make balance decisions, based in medieval history.
As said earlier, duchy capitals have been frequently requested, frequently rejected. Again, a matter of game balance.
The realm size penalties do not need relaxed, nor do we need ducal size penalties. There aren't realms in BM with proper density. If you allow realms to grow larger, you reduce the number of realms, the number of potential council positions, the number of potential conflicts between realms, increase the distance you have to march to fight et cetera. The point is to localize conflicts, not have a few empires under the control of a few characters. That tends to be how islands get locked in peace more easily than having a wide variety of different personalities leading realms and conflicting with other personalities.
