you can play with the option and remake an observer a human.
Thanks for the suggestion but actually no. The Observer setting is locked and not even changable from the editor. Actually using the editor in this way is the only way you can load a scenario for Multi-player LAN games. LAN Multiplayer doesn't have a scenario load: only a saved game load. But you can change the scenario to a saved game and then the host simply loads that.
I've attempted to look thru the saved game files with a hex editor. Now there is a "cheatomatic" program which can be used to find the locations of various resources and once found, you can type in a new value for that resource. Sometimes it won't work with EE-AOC at all and sometimes it will.
I can try to use that to find the hex location of the "Observer" switch for Player# 2.
However, there should be some people here with insights on where to find switches in the save data files.