Why not just play it like it currently works 1 vs 1 (so use 2 colored armies each) BUT only use one event deck each and play like each side is a single faction for all purposes. That should simplify things abit for you.
Also a great idea. It might work well as well. I like the idea of having different start positions relative to the opponent though, and the opportunity to spread out quickly and amass more wealth early for bigger battles. I would agree that having access to the extra army pieces is a must in this situation though.
For three players though I just don't think the game will work with 3 player FFA. I suppose you could make one player play with 2 factions and one event deck like I suggested for 1 vs 1 and then balance it out by starting the other two players with a larger opening hand, maybe 5-7ish cards? Or let them draw 2 cards per turn instead of one.
Unfortunately I just don't think there is a good option for a 3 player game here unless you want to do the suggested alliance game. I wish they would have printed the map 2 sided with a good 3 player option on the other side.