This has been an area of great interest to me and I believe I have identified a severe flaw in FM07 that is the root cause to most of the problems and complaints about this game.
After performing some of the tests identified in the AI Tactical Behaviour thread, it seems that the AI uses a global mentality of 10.
The AI makes heavy use of individual settings such as FWR and RWB to control how offensive defensive they play.
There is a bug that seems to affect managers within the game. After about half a season all the managers playing mentality become very cautious as displayed on their personal page.
The this has the affect that the AI will use increasing defensive tactics against the user as the season goes on.
Notice how after a while all the Scout Reports start to indicate counter attacking defensive formations.
This is not a problem with the scout report, just one of the inputs to the algorithm. Everything in these scout reports is valid.
Also do you notice that sometimes the scout reports are okay again for 1 match. This is because the issue only makes managers more cautious over about half a season. This is a new manager who has not started his decline into cautious oblivion.
I believe this answers a number of common problem that are mentioned on these forums every day.
Reranking can be explained by this issue as to can why tactics begin to fail.
This is not some great new AI that adapts to your tactics it is a flaw with the managers playing mentality.
The AI is pretty simple as we have seen in the other thread. It uses the managers tactical stats to determine how they play. It has defensive and offensive variations to this but these are quite simple.
The AI is quite simple. It looks at form and reputation to calculate how it intents to play against you.
This will be the base manager tactics or in the case of a big difference in the teams odds more offensive or defensive tactics.
This explains how you seem to be able to beat the better teams who have contradictory tactics e.g a VC tactic with offensive additions. Equally we all struggle against the weaker teams with the VC tactics with defensive additions.
I think also this explains the problem with massive shots on goal issue that many people have.
Final point is to other who want to see how the defensive AI works you need to test at least half a season into the game to get what tactic you will be facing week in week out.