Alright, it's clear that [b]option 3: a group of Tarnished warriors[/b] is the most popular option, with an emphasis on narrative over game mechanics, set shortly after the Shattering war. I like this premise too; it gives us leeway to make our own NPCs for the Roundtable Hold and in the rest of the Lands Between. We could even make it so that the inhabitants of the Lands Between haven't entirely lost their minds yet, potentially allowing us to communicate and reason with the knights and soldiers that serve the various demigod armies, or the peasants that live in the forts and villages throughout the world. 

Now for a few other issues. Personally, I think there are several other game mechanics we should also ignore: 

[list][*] No respawning, both for us Tarnished and for NPCs/enemies. Dead is dead. 
[*] No Flasks of Crimson/Cerulean Tears from the get-go. Let healing be done with traditional remedies or restorative magic, and let FP/mana/whatever-you-want-to-call it simply regenerate over time. Healing potions or crystal tears with special effects could be found as loot throughout the world instead, and the ability to craft them (like the perfumers) could be part of a PC's skillset. 
[*] No sites of lost grace, or at least not in the way that they function in the game. The guidance of grace being visible as rays of light makes sense and should stay, and perhaps this light converges at locations that would make for good resting spots, but that's as far as it should go. It doesn't have a useful place in a written narrative, in my opinion.[/list]

Then there are some game mechanics that I believe we should keep, but adapt to make them fit: 

[list][*] The strength of runes, the ability to become more powerful by defeating enemies, should probably be a sort of passive effect that we use as a vague excuse for our characters growing in strength over the course of the story, if we don't ignore its existence entirely. I also don't think runes should be the active currency; Patches uses the word "coin" when describing wealth, so let money just be gold coins or something. 
[*] The Roundtable Hold. I'm not very fond of including Melina in the story and her ability to teleport us to a version of the Roundtable Hold that exists outside of the world. I don't think fast travel in general is a good idea. Unfortunately, we don't know how other characters like Roderika or D are able to travel to it. Do we say that there are portals throughout the Lands Between that can take us there? Maybe it's a place we visit in our dreams? Or does the illusory Roundtable Hold just not exist yet, and we have to fend for ourselves in the Lands Between until we reach the Fortified Manor in Leyndell? 
[*] Spirit Ashes could be reworked into an ability or a school of magic, like I suggested for alchemy earlier.[/list]

Let me know your thoughts and opinions.