For the specific purposes I'm thinking about, we have a Ratcatcher with the 'Threading the needle' action card. If the players Small But Vicious Dog is engaged with the target, would you count that as sufficient for fulfilling the 'At least one ally must be engaged with the target' requirement of the action card?

I'm mostly inclined to allow it but I'm interested on other GM's thoughts (and an official call if anyone is interested enough to give one )

Yes, I'd say allies include all forms of followers, recruited groups of NPC's and other more or less temporary characters which fight on the same side as the PC's. However, in my oppinion if the players face bandits and then a troll comes along and the bandits and PC's work together against the trolls "allies" would be a too strong word to use and I wouldn't let them use the "Threading the needle'" if only bandits were engaged with the troll.

I'd allow the ratcatcher to use the ranged action card if his/her dog was engaged with the enemy.

Important to remember is that the party is another thing as it consists of the PC's. For example, the party sheet effects, talents and other bonuses doesn't apply the allies.

At least, these are my thoughts on the matter.

They pretty much mirror my thoughts as well, good to know other people think the same way

In my case, I don't consider a Follower to be an ally. Mechanically, the dog is an extension of the Ratcatcher and either it is doing something or the Ratcatcher is (action card wise), and even if it is engaged with the foe I don't consider it an ally mostly as I feel that gives the Ratcatcher too much oomph.