You are hitting on some of the limitations of a 90ies era scripted AI such as the one in TOAW...still the PO made it one hex from Moscow, Leningrad and Rostov, took Sevastopol, not bad! And yes...overextended itself...umm this all sounds like as it happened in RL

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here is some clarifications/suggestions ..other than playing a a human
- The PO does not know when to stop and pause for supply considerations (e.g. when it's overextended) or how to efficiently bring forward the Rail Repair (the human player should do that) and repair bridges which are important aspects of this scenario where the initiative changes hands many times and in different parts of the front.
- It also does not plan for a continous front, so for a good player it' s easy to isolate enemy units.
- The Axis PO is set to go on the defensive (as a general bias and also individual formations) in December, maybe it could be made to stop earlier but then the historical fun of the Winter counteroffensive goes away.....but even then the PO will not efficiently dig in..(PO units fidget alot)
A few rebalancing suggestions currently available other than those in the scenario description
- Have you used the TO (available to the Soviet side) to give the Axis better supply & logistics? It has been added specifically to help the PO. (I am thinking that I could add another TO that speeds up automatic rail repair for your opponent)
- For more expert players the PO opponent should be given an advantage in the advanced game settings ...
- Playing with fog of war ON for the human player also helps and makes it more fun.
- Also a few formation tracks and logistics in the Valdai have been improved since version 6.
Excellent East Front Games with a good AI are Decisive Campaign Barbarossa and GWITE.
Hope it helps!