What exactly is going on with the Xaela's civilization?

[Lurina]

What I mentioned is just one of the myths. The other mentions that Azim changed into a mortal form and helped create one of the tribes (making them his offspring), before changing back to his normal form and leaving. Combine this myth and the previous one I mentioned, and Hydaelyn/Zodiark doesn't sound plausible. The real Azem before the Sundering, very likely.

I don't follow your logic. Again, we know that all of the player races are sundered Ancients, not creations.