I agree with you that this is a problem which should be solved. I even agree
that your proposed solution probably solves it in most practical cases.
However, intellectually this doesn't make much more sense than most other
rules regarding faction in Olympia II right now (which is one of the reasons
Epos was a faction-less design).
For example, currently a unit will come to the defense of another unit
without necessarily knowing (or being able to find out) why. Your proposal
doesn't really improve that. If unit A in an effort to be stealthy is
neutral towards unit B, but unit B defends unit A (because it defends the
entire faction), neither A nor B will see the others faction. However if B
is attacked A won't come to its defense even if B is a well known unit (which
isn't necessarily what A intended). And if A is attacked B will still defend
it without knowing why. Confusion like this has already killed many men and
nobles in Olympia.
To solve this we need to clarify what "faction" means. One useful and
consistent way is to think of a faction as a little flag carried by each unit
(computer programers: by flag I mean a piece of colored cloth). The unit can
either hide that flag or display it openly, however this flag can't be
counterfeited (except maybe by a new researchable stealth skill).
If a unit displays its flag every other unit will immediately to what faction
it belongs and execute defend/hostile orders accordingly. If it doesn't, no
other unit will know and others will only attack or defend it if they have
defend/hostile orders for the particular unit. The behaviour of the unit
itself is unaffected by whether it shows its flag. A masked unit can see an
unmasked unit of a faction it defends under attack, come to its rescue and
ride off into the sunset without ever revealing its own faction. The reveal
characters lord subskill corresponds to a thief sneaking a peek at the flag
which a unit carries with it.
All of this would of course be implemented with the help of a "MASK 0/1"
order. Adding this option to the already running game should have minimal
impact, in particular if the initial state for all characters is to be
masked. It should also significantly reduce the number of friendly fire
casualties. The game system will be more logical and hence more easily
Most importantly it enhances the enjoyment of the game by adding another
strategic option for players. For example, will it enhance or hurt the
safety of one of those dastardly AOO banditto units to openly display its
faction ? That pretty much depends on where you are.