I must say that I'm quite surprised that so far nearly every poster has assumed that a force assaulting clerics could use tightly packed formations and suffer no casualties from area effect spells.
Even low to mid level clerics have a number of area effect spells which could destroy tightly packed units quite effectively. Sound Burst, Calm Emotions, Darkness, and (especially) briar web would be devastating to tightly packed formations. At a more FR like power level (which you have if the Theocracy can use raise dead on common troops and the mageocracy can produce wands of fireballs in significant enough numbers to effect the conflict), Flame strike and Blade Barrier add to the devastation tightly packed Mageocracy units would suffer.
As for armies of Iron Golems, that presupposes a level of resources unequalled even in the Forgotten Realms. A large army of common troops could be hired, equipped, and fed for quite a while for the cost of one iron golem (which may be taken out by a Planar Ally spell, or a mass of archers with Greater Magic Weapon enhanced arrows) and that's ignoring the experience cost and time required to create such a monster.
There has been some suggestion that the clerics being good is a liability as well. (Lawful was mentioned before as an asset, so I'm assuming it's the good part of Lawful Good which is supposed to be a liability). However, it has a number of advantages as well. A reputation for treating captured prisoners humanely (rather than enslaving them) makes your enemy much more likely to surrender to you instead of fight to the death (reducing your losses). After all, I'm pretty sure more Germans surrendered to American troops in WWII than surrendered to Russian troops. Similarly, good forces tend to be more accepted as conquerers. When Hitler initially assaulted Russia, some hoped that he would be their liberator from Stalin. When his policies turned out to be evil, he faced fanatical resistance all along the Russian front. Information gained from torture may be unreliable, but it's completely unnecessary when you can Enthrall and Detect Thoughts. Furthermore, I see nothing in the description of Lawful Good (or any other kind of good) that prohibits ambushes (sneak attacks) or attacking the leadership of the enemy. (Sure, assassination might be off limits, but if you send an elite squad of Paladins behind enemy lines to assault their headquarters, that's a daring strike at the heart of the enemy, not an assassination attempt
Plus, troops inspired by their personal desire for power and prominence (evil) don't tend to hang around when things start going bad. On the other hand, troops inspired by a desire to protect the innocent and protect their homeland (good and neutral) are a good deal less likely to give up in the face of bad circumstances. I'd say that being good is an asset to the theocracy rather than a liability. (Not that the wizards are necessarily evil).
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