North of Hagudst is prime settlin' territory (would make a good fortress).  Magnar goes through the trouble of marching to this site to build an outpost instead?  Especially considering that I just established my second city, and am Magnar's closest neighbor, I was sure he'd put a city up there.

The only reason I can think that he didn't is that the city isn't contiguous w/ his capital, but that is a rather poor reason...

To boot, I can still get a 3/3 settlement (just east of the outpost)

EDIT:

Magnar's refusal to settle cities cost it the game.  He had plenty of outposts, but even if he'd settled a city instead of an outpost at the above described location, he might have had a chance against me.