Castles, cities ... pretty much everything uses the same code on the sieges. The AI seems to always attack population centers first. I haven't actually tested the most current version (last week's code), because the most current version has some other bugs that need to be worked out first (like the guys in the barracks, from whom you get troops, are all missing ... don't ask how that happened, it's a long story). Anyway, there's a lot more to go, but cities are certainly vulnerable.
I'm not sure if the code is in place yet to change over a spawn point if the city changes hands ... although that would be a good question. If and when such is in place and working, you could effectively destroy a faction by taking out all of its major holdings. Again, not sure if it would be recorded as completely eliminated ... but with no major spawn points for armies, it would be effectively neutralized.
