ORIGINAL: Lobster
As long as a unit has a line of communications, whether it's one hex or one thousand hexes, the unit is considered supplied and never runs out of fuel. That is the problem. Unfortunately, after thinking about this a bit more, the only way around that as I can see would be explicit supply. That could be an entire game by itself. Call it Logistics Tycoon. Hopefully your mention of a new way of looking at lines of communication means that aspect of the game will be more reasonable.
There are a whole host of supply issues with TOAW. I haven't said otherwise. But how it treats unsupplied units is not one of them. That's one of its strong points. I hope that if I've accomplished anything that I've cleared that up.
As I've hinted, the "infinite" length supply line issue will be addressed in 3.5. But other issues will still remain - such as lack of component supply and lack of sea supply.
However, it is not correct that supplied units never run out of fuel in TOAW. As Unit Supply drops, Movement Allowance also drops. As I said, that models a drop in "duty cycle". In other words, the unit spends some fraction of the turn sitting on its thumbs for lack of fuel.