Oh, Conclave isn't so bad. I typically was declaring war on twelve people at once just to get some decent fights at my previous rate of conquest, anyway, and the addition of further internal strife to keep your monolithic blob from being an unstoppable superpower the instant you hit kingdom tier because I could hand-select and groom my heirs to have 200+ relations with everyone and a more centralized powerbase plus ever-more unstoppable retinue armies.
Anyway, I generally agree, although things like dwarves coming together to argue for lowered taxes requires dwarves actually
pay taxes at some point... I also can't help but indulge my historical reading fetishism and say that most games get the response to taxation a bit wrong everywhere but maybe China. Peasants did not have cash currency (coins) to pay their taxes with, they paid in kind, and they did not behave in a rational sense to tax rates. They only really complained about taxes when they were hiked, because it was more than the "traditional" tax rate, no matter what that traditional tax rate may have been. That is, paying 10 bushels of grain in taxes was perfectly OK if that was tradition, but if it had been 8 bushels of grain before this, they would raise their voice in anger, and they would argue against it solely based upon the fact that it was against tradition to raise taxes any higher.
You might also be interested in looking over the
Class Warfare thread, which covers much of the same topic, although it spills into some others. (Although, granted, I've been meaning to give that topic a good rewrite for a while, now...)
I think perhaps, however, that you're leaning a little too hard on CKII for your inspiration without taking DF's own strengths and quirks into consideration. You're basically copy-pasting the faction system's mechanics, here. The thing is, CKII had vassals that joined any random faction just because they don't like you, and were looking for any excuse to start a war to gain power at your expense. DF's strengths lie in its personality system that would benefit from a system where dwarves form their alliances based upon their own personal ethics and personality quirks, as well as, possibly, things like guilds.
Keep in mind, of course, that Toady already does intend to make guilds of dwarves from particular job types, followers of particular gods, and other internal groups have their own internal cohesion and capacity to make trouble feuding with other internal groups. (I quote a few Toady statements with regards to that in Class Warfare, and you can also look up the devpage to see some notes on what he plans to do...)
What I'd personally like to see most is a sense of "concentric rings of loyalty". That is, a royal guard might be loyal personally to the king, believing in them with fanatical devotion, and willing to do anything for them no matter the cost, or they might be more loyal to the nation as a whole, loyal to the throne as an extension of their loyalty to country, or they may be loyal simply to the concepts of order and justice, and see honorable military service as the highest ideal to which they strive. While these different loyalties may align most of the time, when one comes across "loyalty cascade" moments, it tells you which side they will break down on. Like, for example, Erwin Rommel fighting out of loyalty to Germany in spite of distrusting Hitler, only to decide it was time to assassinate Hitler when he saw that Hitler would bring ruin to the nation to which Rommel was actually loyal, when most of the other high command were personally loyal to Hitler, alone. If that king goes insane, (or is possessed by outside forces,) that royal guardsman, if loyal to the country might consider assassination to protect the country from the mad king, while a honor-driven guard might refuse to turn his blade on his lord, but also refuse orders even if it meant execution for disloyalty, while a personally loyal guard simply continues to follow orders even as the king sinks into madness. (And of course, a guard may simply be driven by fear of the consequence of disobedience more than any loyalty or ideal... Any number of driving factors can be simulated.)
Now, in the current version of DF, though, I'd expect the most sensible sets of groups would be ones based upon personality quirks that have needs. Social dwarves might group up to demand better tavern/dining hall space. Order-driven dwarves might be outraged that there is no hammerer or justice system. Etc.
This basically leads to a pair of major function changes: One is that motivations/goals be made more flexible (probably handling more than one at a time) so that ambitions like a countess that wants to overthrow the duke and usurp his title can also be shared by mere craftsmen wanting to win a guild election to become the head of the guild, or being motivated by an abstract ideal such as "seeing a reign of law and order" and demanding harsher penalties for criminals. The other is that dwarves have some sense of loyalty and identity within their own sub-groups.
I don't think discontent is hard to brew in DF, but what it needs is that sense of unique dwarven identities that would drive them to group into political factions that make some sense in the first place.