I completely agree with you and Moose. It is what made fighting him so frustrating for me - I would have loved it if we could have befriend him. I didn't agree with his 'might makes right'-mentality, but that seems to be part of the Garlean mentality in general. And I think given the chance, we might have even been able to talk to him.
About the raid on the Sands... I, too, think it's Livias fault it escalated back then. They where after us (or claimed they where, anyway...) and the Scions. From what we know about Gaius, especially from his conquest of Ala Mhigo, he actually tries to limit casualties, in contrast to most of his countrymen. So, I think had he actually been there, he would have accepted Minfilia's surrender and leave the rest alone. Allas, we got Livia, and everything ended in a huge blood bath. Glad her sister is her complete opposite...
And, yeah, Gaius' definitely had a point... I hate extremism in any shape and form, though, that's why I can't relate to the Garlean Empire at all. Really sad such a great character had to be one their most loyal generals...
I actually talked about this with a friend a while ago and we both agreed that Gaius is what a villain should be - someone with both good and bad sides instead of only bad, who people can somewhat relate to and actually say 'hell, under different circumstances, I could be friends with this guy...'