As the new rules currently stand, it would take 500 points of collateral damage to kill 1m civilians. That is one round of 500,000 infantry or 2250 heavy tanks (100 tons). While that is still higher than historical, it is lower than VB6 and populations in Aurora tend to be larger than those of historical combatants and therefore more likely to be densely populated. Also, for game play purposes the collateral damage losses need to be meaningful. BTW I'm not saying the current level is definitely right - that will depend on playtesting.
I can imagine that Collateral damage is tricky to balance, because it needs to be balanced in both ways. Too much collateral damage and the entire point of offensive ground forces goes away, which is the ability to take over planets mostly intact instead of nuking from orbit.
I totally agree with your approach that a successful balance should promote and reward using specialist and highly trained + well led lighter units, supported by precision weapons ( which would minimize collateral damage ) over using brute force of the heaviest bombardment guns and mechs/tanks in the arsenal. Basically the German concept of Bewegungskrieg from WW2 using lighter mobile small tanks, fast moving formations and precision CAS to quickly breakthrough and go around most of the enemy forces so that they could force surrender without much fighting.
The heavy weapons need to have their own role still when it comes to breaking enemy fortress worlds, or escalating a drawn out war/stalemate where both sides are well dug in, but such heavy fighting should maybe lead to a 50% destroyed world on average IMO ( Still better than nuking, but giving you a bit of a feeling of was it worth it afterwards ).
I've suggested before using some sort of diminishing returns for planetary damage and population casualties, but that would require keeping track of what the maximum population / facilities was before combat started ( so that it becomes harder and harder to knock out the last bits of it ).