I believe that the correct response to penalizing the mass-production of towns is something that I have seen in many 4x space games:
Since creating a town starts it off with a population of 1000, creating a settler should subtract 1000 from the producing town.
Instead of creating population out of thin air, you relocate them.
This would put an end to the current spamming of settlers, make neutral towns more important, and, in general, add strategic depth to expanding your empire.
The only real downside I see is how the AI would handle such a change, but seeing as the AI doesn't expand enough in the current game, it might not be so bad.
As I don't expect the creators of the game to make such a radical adjustment after the release, is it at all possible to mod this game? After all, this is a simple change.