As promised in the "On the Horizon" thread, here is what I've figured out about the game's backstory.
Everything in this post is a spoiler.
The region that the player's settlers "discover" is ancient. It's the birthplace of the human race, and possibly of all life in the world. The druids in the western forest are the first human culture, and your own people are their expatriates.
The gods your people worship in the game are not the first gods. Before their arrival were much older beings with simple names (e.g. The Dragon, The Spider, etc). It's implied that these beings were/are more powerful than the more anthropomorphic gods of the DD pantheon, but were also much more reserved and less likely to interfere with mortals.
The dominant force in the primeval world were the dragons. The dragons were very nearly worshiped by the first humans, and were respected by the other races. The dragons saw to it that the humans in the western forest, the nagas in the southern swamp, and the spiders in the northern desert coexisted peacefully (the eastern tundra was at this point the eastern meadow, and was neither inhabited nor fully charted).
For reasons that aren't clear, but are probably Horatio-related, the spiders attacked the temple of The Dragon in Hexx, which was at that time inhabited by humans. The spiders destroyed statue of The Dragon and desecrated the temple. The dragons were super pissed at the spiders, and more than a little cheesed off at the humans for allowing it to happen. They ordered the humans to launch a genocidal war against the spiders, and to build a new civilization over their homes so that they could never return. This new settlement grew culturally distinct from the western druids and eventually became the ruins that the player explores in the northern story arc.
The northern kingdom became a place of high culture and high magic. At some point, they discovered the nine gods that make up the standard DD pantheon. The naga were initially skeptical of these gods, but eventually came to acknowledge their power, if not their legitimacy.
At some point, a powerful druid name Hobarix defected to the northern kingdom and made his way up to the very top of the magical council. As part of his integration, he dropped his old druid name and took on the more city-like name of Namtar. Yes, that Namtar. He was actually a pretty swell guy at first.
Horatio began stirring the pot. Using his magic to disguise his goat-ness, he worked his way into the nagas' political structure and began agitating for a glorious war of conquest against the northern humans. Horatio was a busy goat, because he was also advising the council of wizards in the northern kingdom to prepare dangerously powerful magics to defend themselves against naga aggression. The council accepted the plan, with one member strongly objecting and calling for a veto. That person was Namtar, and he was stripped of his office and imprisoned.
Well, we all know how the war went. The hellish magic used by the council completely destroyed the northern kingdom and took a nice chunk out of the nagas as well. Mystera was horrified at this abuse of magic, but could not bring herself to punish her followers, so JJ stepped in and did it for her, transforming the five council members that participated in the ritual into the Demonlords. Namtar escaped and headed to the uninhabited eastern meadow. Seeking power (possibly to get revenge on Horatio), he converted into the cult of Dracul. Namtar's talents allowed him to quickly rise to the very top of the cult and become Dracul's most favored servant. However, Dracul has one hard and fast rule, and that is that all living things most eventually die, including his servants. Namtar wanted immortality, and used his magic to obtain it. Dracul was angry and tried to punish Namtar, but Namtar had anticipated this and had warded himself. At some point, and for unclear reasons, transformed the eastern meadow into a frozen tundra. The druids deployed the sapphire from the wreckage of the old temple of The Dragon, believing that it had the power to stop the unnatural cold from spreading any farther.
Questions that I have (devs plz spoil kthnx)
1) What is Horatio's deal? He says he felt abandoned by his creators. Is he talking about the dragons? The old gods? Nandrew himself?
2) Why did the dragons stop intervening in mortal affairs? There's a note from a citizen of the northern kingdom complaining about how the dragons aren't doing anything to make the nagas stop attacking them. Does this change in attitude have to do with the new gods?
3) There' s a note you can find in the northern area that shows the voting records for the Big Hell Spell debate. The initials of 5 of the votes match the names of the Demonlords, and the "veto" voted is signed "N," which is Namtar, but there was a 7th person who abstained. I don't remember the initials used by that person, but it didn't match anyting obvious. Who was the 7th voter? EDIT: Mystery solved. The 7th voter turns out to be my faulty memory :/
4) What happened to JJ anyway? He wasn't always the Broken God. What was his portfolio before he went nuts?
5) What were the spiders trying to accomplish by raiding the temple of The Dragon? I'm guessing that they coveted the sapphire, but what was their plan exactly?