It is one of our goals to make factions being able to be wiped out. Destroy all stations of a faction in a sector and the faction will be wiped from that sector. Right now there are still some limitations to that (for example transporters would still spawn), but more on that below.
So first off: We have several technical limitations due to the server structure. The galaxy is generated on the fly, meaning sectors that haven't yet been visited by players don't actually exist in the database. This makes it difficult (not impossible!) to predict the actual influence areas of factions. So we have to make estimates, which leads to several inaccuracies.
Also, sectors are unloaded from memory once they no longer have to stay in memory. This isn't ideal and we're currently planning a middle ground where sectors with player crafts stay in memory so factories and miners actually do something while you're not around. BTW: This impacts the server performance, and less players will be able to be online on a single server, since more sectors will be kept in memory and more memory is being used.
Sectors being unloaded from memory also means that the server has no access to a sector once it's unloaded, so, again, it has to make assumptions on what is happening in the general area.
As you've already stated correctly, we can only spawn enough ships so the performance of the server doesn't drop (which is already hard enough). From a technical view point, a faction may have infinite ships. But we actually don't spawn that many ships. The occasions where we spawn ships are faction war battles and when stations are attacked and they call for help. Factions are by far not unbeatable. They are hard to beat, by design, and they can recover to some point (the station's call for help has a cooldown, for example), but they're far from invincible. The only nitpick there is, is the estimates for their territory, which is the basis on how we spawn things like freighters, battles or head hunters.
I understand where you're coming from, but it's a lot more complicated than a strategy game approach where you have fixed units and stations. We have to balance immersion and technical limitations at the same time. Avorion is not an MMO.
Considering the AI cheating with their hangars: We want to make hangars available earlier soon. Hangars should be available earlier (thinking Titanium) since fighters already are anyways.
I hope that clears some things up.