Assassins are very active with the Muslim factions played by the AI. Perhaps that's an overstatement...
In my campaigns, however, if I place a spy with a general, the general is protected. I've never yet experienced the assassination of a general when accompanied by a spy.
(I'm playing with the August SSHIP098 version in VH/VH)
I'm also testing the "only generals can attack" option with France and it does indeed make the game more complicated. When the number of generals became low, you could hope that a captain would be knighted after a battle. This is not possible with this option. The other drawback is that the AI has no qualms about sending large numbers of armies without generals to attack my cities...