3.1 has functioning AI.
However it isn't very good. I can defeat a map full of German AI allied together. Not easily but eventually, that shouldn't be possible. The Allies arne't much better. Only the Soviet AI is good, two hard soviet AIs will defeat me after about 2 hours of fighting and only kill 1 of my units for every 4 they lose. The Soviets even occasionally use aircraft, something the other two sides don't do.
Out of interest, where did you get this third party AI? I'm bored of the defealt crappy AI.
EDIT: Having done some reading, poor AI is apparently the fault of the maps in this game. I haven't played all of the maps and maybe some are better than others. A map can be optimized by following these steps:
http://www.cnclabs.com/maps/generals/worldbuilder/tutorials/adding-ai-to-map.aspx