In addition there is the story why the elves are not one people,
gnomes and dwarfs, there's a story there
and in general, it seems to me like you could totally rip off all of European history after the romans, take a look at the Brits, the French, the Spanish, and Germany (and probably a bazillion other places that used to tiny little kingdoms). It seems to me that the history of this world would mirror the history of Europe in that it is full of tiny little warlords and small kingdoms. Now I am not realy sure how to finish this, so... I always like to look towards reality for insperation, and then find its utter incoherence totally unsatisfying and give up on the no good vs. evil thing, so good on you for sticking with it!
and real history.
ps: thanks for starting this thread, I have really enjoyed it, and it inspired me to post for the first time, I have now discovered a play by post that I greatly enjoy