I agree that ramping up based on expansions creates a bad experience for players (both premium expansions and even optional expansions in the research tree).
The rewards of the tournament already scale better with smaller cities, as one PoP, MM, EE, RR, or Blueprint has more overall impact on a city with less total workshops, manufactories, culture buildings, event buildings or magic buildings respectively.
As mentioned early in the thread, the optimal city for spire and tournaments (the largest recurring goals in the game) becomes to not take any optional expansions and obviously not buy any for diamonds. It's understandable that it exists as a choice on whether to take those optional techs to make a larger city with more buildings or leave them and be more lean / efficient, but it doesn't feel good in a game where advancing and growing your city is the primary advancement.
Scaling based on AW levels also poses a problem in that it's more negative feedback for advancing your city. For wonders that provide troop bonuses (damage bonus, health bonus, free troops, training size/speed) it's easy enough for a player that plans on primarily fighting in tournaments and the spire to justify. Similarly for those that provide goods bonuses if a player plans to primarily cater. The problem lies when a player is military-centric and therefore would increase their difficulty by adding or leveling up a Mountain Halls, for example.
As for correlating with number of researches completed; that makes more sense. The rewards scale well with progression through the chapters. PoP, MM, EE values are percentage of a single building (which are multipliers on higher numbers in higher chapters). RR and Blueprints are only useful to those who are progressing their cities through the chapters as well.
Scaling on expansions and AW levels both penalize trying to play a balanced city and make it more effective to focus heavily on either military or goods production (to conserve space and limit the wonders needed).
If the difficulty were to scale only with progress through the research tree (based on required researches completed) there would no longer be breakpoints where it is beneficial to pause progress for the sake of an easier time in the tournament or spire. With these changes, those breakpoints would move from "I don't want to take this next SSU" to "I don't want to take this next City Expansion" until I can comfortably plow through the next chapter to get the power upgrades I need to offset it.
Optional squad size upgrades will no longer have any negative effect other than the opportunity cost of the KP and activation), only positive - easier time in province battles and more troops from instants and wonders. The same should be true for optional (and diamond-purchased) city expansions.
As for wonders, it seems that they are the secondary lever for power beyond progressing through the chapters (and the only real lever once completing progression). Use the scaling of the fight difficulty and/or cost to cater to make it so that doing higher and higher provinces is the reward for having wonders that support your preferred style of play rather than punishing the player for any AW levels that don't directly help with the tournament province. It should never be the case that a player would benefit from not using their KP rather than upgrading an AW.