Focus on the mission objective which is NOT to exterminate the Dread Lords.

Getting the military resource would help.

I did 3 things.

1) Built several military starbases to assist the ships
2) Build many small ships with as much gun as you can throw on them. Skip the armor
3) Always make sure you can attack

You will lose ships. Lots of them. But the Dreadlords can only produce about 1 - 2 ships at maximum. You can produce swarms. Just keep your transports guarded and you should be able to descend upon them.

I just finished that one last night. It is a real pain but can be done. First never try to engage the Dreadlords combat ships, its just a waste of time. Second from the very start buy a colony ship each turn for 4-5 turns. Spread out as quickly as you can. Also set your production to 100% and your taxes to where your approval is 50%. Now max out the research bar and research the techs that allow you to upgrade research.

Make sure to buy an improvement on each of your planets every turn. Typically for the 3 initial planets I alternated between factories and labs with a starport on each. Be sure to build at least 1 farm on each planet.

Once you get 2 upgrades to your research buildings switch to engines. Speed is a must for survival here. Trade techs with your allies every turn. Shoot for warp drive II or III. Research logistics and beams as well as planetary invasion and a few of the troop upgrades. When you get down to about 5000 in cash reset your economy to a more normal level. Note you will probably still be in a negative cash flow, but the 5000 should last you long enough.

Tactics: Never directly engage the Dreadlords(DL). Your combat ships will mostly be decoys to lure them off. Here is where the speed is necessary. Once a DL targets one of your ships they will chase it until they kill it. Use your speed to lure them up to the Yor territory initially. This keeps the Yor in check and allows your allies to build up. Never ever run your DL targeted ship near any of your other ships. Use your speed to snipe at the DL transports My typical combat ship was a small hull with 2 warp III drives and 3 plasma. They had a speed 7 and 6 attack. Note you will need at least 8 of these in 2 fleets for the final run. For my final assault force I had 8 of my combat ships 2 constructors with speed 7 and 5 troop transports also with speed 7. To build up these forces with out the DLs ganking them send them to the bottom left corner using the bottom edge to get there. Make sure that none of your ships gets seen by DL ships on the way. Once in place simply move up the left edge of the map and create starbases as needed to get to the Yor home world. Nuke it with Mass drivers and move on to the drengin.

I'm in the middle of that DL scenario right now and the DL have pretty much blown away all my starbases. I'm surviving by building mega-sensor ships...cargo hull, 14 sensor, twin engines. So I hope I see what's coming. Then if transports come along, I've got a few fast fighters who hopefully can flank the battleships and take out the transports.

I wish I knew that about luring the ships off, cause now I've got 4 DL battleships roaming my neck of the woods.

Much much h8 for the dreadlords. My strategy revolved around first strike with large attack power fleets. Its not pretty, but it works.

can't get the DL ships to follow me, though. I don't understand how others can, either, because the ships move faster than their sensor range. I try and stay just out of their movement range, but they won't follow me.

The DL ship needs to start a turn with your ship in view but just out of range. Once the DL ship heads for your "Bait" ship then you can take off and they will follow it pretty much forever. Well until they catch it anyway and kill it.