First things first, I support divine essence being a separate thing to souls. This has always been how I've seen it. Divine essence is the 'stuff' which makes gods godly. Gods may or may not also have a soul, as divine essence is traditionally bound to a god's blood (a.k.a. ichor), which is a part of their body. But with divine essence being a separate thing, this resolves many issues of why gods and demigods are special, regardless of the fine details.

On heroes, part of the cost of making a Hero heroic is bolstering their soul with Might, making them immortal.

On soul decay, I propose this: An intact and healthy body inhibits the decay of the resident soul. Stuff like divine essence and the MP invested to make Heroes heroic further reinforces souls against decay to the extent of stopping decay entirely while they are alive. Part of making an immortal species is spending MP on their ability to keep their souls together indefinitely. [i]Ad hoc[/i] solutions, such as those available to mortals, do not prevent this fraying, and self-made immortals will need to work to maintain their immortality (e.g. a lich needs to keep consuming souls so as to replenish the part of their soul which frays).

On the death of powerful beings, typically their death is brought about by something which weakens the being to the extent that the being is too weak to not die. At this stage, stripped of power, the being (e.g. god, hero) is likely (although not certainly) too weak to resist the Sky of Pyres.

On what counts as a body, it is whatever you have spent Might on to make as a body for your species.

But now a biggie, finite souls:

Finite souls is a logical consequence of any reincarnation-centric system, otherwise why do souls need to be recycled? Furthermore, finite souls is the central idea of Katharsos' Sphere, so a rejection of this idea is a rejection of the character as a whole.

A finite soul system will require enough souls to fill billions of mortals in the reservoir of souls to not be problematic (because if you try to push that boundary much further, then the planet's natural resources can't sustain the population), or trillions if you count animals. Since souls are not discrete, we do not need a fixed number.

Considering the backlash to the idea of a soul crisis, I think we should ensure that we do have enough souls that natural population growth on Galbar will never deplete the reservoir. In this case, the limited number of souls [i]only[/i] becomes an issue if someone attempts to horde billions of souls [i]or[/i] the souls stop being recycled, that is, if IC events [i]intentionally[/i] try to create a soul crisis. If Cyclone is wise he won't personally instigate a soul crisis. Leave that to the gods whose goals are to consume all of reality (*cough* Anzillu *cough*).

One solution to a potential soul crisis, if someone attempts to cause a soul crisis, is indeed to find a way to create more souls, or find some other system. There is no reason why the characters cannot invest in some new system if they find the current one flawed. However, the system outlined as part of the Sky of Pyres stands as a good [i]status quo[/i]. Spheres are malleable, so we can change the status quo via IC actions. Of course, any effort to change the status quo enforced by a Sphere will be a difficult and challenging task, but that only makes for a better story. Players are allowed to get creative, to find ways to work around the limitations of the system their characters find themselves in.