I stopped playing with the outlaw sectors turned on against AI for two balance reasons.
1) If the AI are too weak, they expand super slowly, or die altogether.
2) If the AI are strong enough, the outlaw sectors feed their capital ships and titans a ton of experience, making them super hard to kill in the mid-late game. The difference between a level 1 and level 6 titan is huge.
That said, the outlaw sectors are a very fun addition if you're playing with friends. They slow down the early game, make it basically impossible to rush, and make sure that everyone has leveled cap ships by the time you meet.