Might be that given the fact that the AI has many bonuses (i.e. it develops provinces much much faster than the player) its resupply rates overcome the attrition losses and since AI seldom uses levy those are all retinues. Perhaps it's more than a simple "not working" having to do with game balance but I don't know exactly how it happens, all I know is that I am rather sure the losses to attrition are either zero or too minimal to even notice.
They should move. If the Ikko revolts do not spread it's relatively easy to counter them, besides they did move and were a very dangerous threat that's why Nobunaga killed every last one of them. I agree they are more of a sect than a real clan (in fact I like this choice when opposed to S2's choice where they are considered a clan) but some sort of connection with rioting Koris spreading to neighboring Koris would be good. If this could be managed by event it would perhaps be even better without requiring changes of design in your original choice.
