In couple of games of MANII that I have played, all the opponents cities have had their flags up (instead of hidden). Is this a problem with the game or is there an option for this?

Do you mean, that you can see opponent's secret allies?
Perhaps, you've created battles with high "Allies Density". In this case, probably, all countries were divided between you and your opponent without neutral countries, so game show you opponent's countries.

Sometimes, it is only 12-rev countries, but if the allies-density is very high and the map is small, then everything is "exposed".....