I started playing Castles II for the first time today. I bought the game really for Castles I, but I figured I had to try this, and found it quite difficult, even on Easy. So I watched the tutorial, twice. Apparently you have to be friendly with your opponents, especially the pope, and make your people happy or you won't survive, and I had some success making sure that I was fighting only one opponent at a time. But you cannot mess up, not for one bit, because if you do, if you take a big loss from a fight for example, you end up almost every day having to endure sabotages, losing troops and resource and everyone will be attacking you left and right. Soon after, the pope will excommunicate you, your happiness drops to 1. I get crazy listening to all those sabotages or the pope demanding more gold. ;)

When I tried to fight with a powerful army of 7 knights, 4 infantry, 6 archers, I was obliterated by maybe 6 archers, 1 knight. The reason I found out was because the people were unhappy, and your troops are useless when they are unhappy. When it starts to go bad for me, I'm always toast. You cannot build up an army quickly enough to defend against the onslaught and sabotages. They're effectively starving you. So this is a very challenging game I must say. Pretty fun too, if it wasn't for all these courier messages. One wants 4 gold, another wants 2 gold etc. When I get excommunicated, I just chop their head off. The people is already unhappy, it can't get worse anyway. :)

I'm sure I'm doing it all wrong. Next time I'll try to take a lot of land, give some to the pope so I don't need to defend certain areas.

Try using the option to Cede land to the Pope to block off enemy attack lines. Take a border territory, then immediately hand it over to His Holiness; this makes the Pope happy (well, happier) and prevents an immediate counterattack. If you wait a couple months, you might make your opponent waste resources and time planning an attack that won't happen.
If you keep your relations with the Pope at 8 or 9, you're considered "Blessed," which means that if another family attacks you, they'll suffer a hit in relations to His Popishness. To see if your opponents are blessed, you need to call a Council together, which is a pain in the neck. Alternatively - attack someone and see if your relationship with the Pope drops. This becomes a little unfair, because the opponents will wait until you're no longer Blessed, and then they consider you fair game. In the meantime, they spend their time sucking up to His Nibs, so you can generally assume that your enemies are Blessed. Best attack strategy I found was to get my papal relationship to 9 first, then attack (which drops that value to 8, which is still Blessed), hopefully provoking a counterattack - but hardly ever pressing another attack until I get that popish relation back up to 9 if I don't have to.
Other than that - mine gold like it's going out of style. Buy off your enemies. Constantly send diplomats to the Pope. You always have the advantage on the attack, since you can use your full army against half of theirs - but losing leaves you extremely vulnerable, since you can lose your entire army, instead of just half.

Also a fun little trick - if you're being attacked in a castle, set some of your troops up outside the walls to attack your enemy's weaker division and destroy his expensive seige equipment. Knights are especially effective for this job, since they don't seem to do too well within the walls. Then run away with most of your army intact. This can stop a steamroll attack dead in its tracks, especially if you've got a few castles to go through.

I've found this game to be great fun and a brilliant challenge; I'd love to swap war stories and advice sometime.

It's been a few months since I played now, but you're right, organmike. After that game, what worked was to be aggressive with the diplomats. So the pope received money as soon as I had any, until reputation was 9. Then, I could attack others; best is if you attack one opponent at a time, and buy the others off. After each attack, the pope needed a be bribed again.

Creating lots of archers also seemed to be a good tactic early on, they're good on castles and at offense because the computer is stupid enough to approach my archers instead of vice versa. Knights also work exceptionally well behind infantry. Good tip about knights destroying seige equipments, I'll think about that next time I play.