From what I heard, AAA developers make AI dumb on purpose these days because Beta testers complain when the AI outsmarts them using standard infantry tactics. The player's stated desire for "Better AI" is overshadowed by the players desire to not be constantly outflanked by numerically superior forces.
Early in Xenonaughts development, the AI was pretty much able to determine a couple places where your soldiers could be based on knowing where they weren't. No cheating, no secret knowledge. They knew where you landed and were you couldn't be. They would blindly throw grenades into the few places where you could be with damn unerring success. The game was practically impossible to breach a UFO, let alone get to it even on the easiest difficulties.