While the faction types are, on the surface, very major, it is my opinion that the taxation rules will provide the greatest amount of change. Each faction has a specified faction type. Each broad type has certain abilities that only it can use. Generic faction are allowed to tax and produce in two provinces each and train a single mage. In other words, the name of the game is cooperation.
Friends are everything.
On the individual level, then, this is quite a major change in the game. In fact, it nearly eliminates some options - it really is not possible to carve out one's own empire, unless there's a city out there that sells a lot of swords. The problem of coordination will occur, but I don't think that it will be any more important than it would be if all of the factions in the alliance were alike. On the other hand, the ability to tax without weapons should result in a major change in game dynamics. Resource control will no longer be critical, resulting in far fewer conflicts at the beginning of the game - if two alliances fight each other, they'll both be swept under the rug by a third who has spent its time expanding and preparing.