Personally, I do not like the concept of Victory Cities. I find that strategies become designed to take a key city in order to win, even if it puts them in a precarious situation in the rest of the world.
The Avalon Hill Game, Third Reich, had a rule that if the Allies landed in Italy, there was a 1 in 3 change of Italy surrenduring all troops. The Allied player would gamble everything to attempt the invasion in hopes to get lucky on the Surrender. Of course, the loss of all of the Italian based units would cripple the Germans.
The same can happen if a team only requires one more city to win the game.
As for survival after fallen capitals, anything can happen.
If a player has the will to keep playing, then play on. Unless, of course, you wish to surrender.