[ТУРНИР-SoD] Тест Fresh Mod

Am I correct in understanding that diplomacy is prohibited?

That's incorrect, diplomacy is allowed.
It's just that neutrals with a value of more than 16,000 will never join.
It's considered a "clean" total AI value, i.e., the number of neutrals * AI_value

Also, no one will ever join if there is even one undead unit in the army.