I don't know where this obsession with Allag is coming from. Allag was wiped out ~6000 years ago, five millenniums before Ishgard was founded. Allag screwed with Meracydia, a dragon culture separate from Dravania that comes from a continent across the southern seas. Maybe Dravania is holding a grudge for that and maybe they're taking it out, in part, on Ishgard... but if that were true why aren't they making war on all the Spoken nations, and why does Midgardsormr point out (in the Japanese version of his post-"defeat" scene) that Dravania is making war on Ishgard for Ishgard's sins?
(There is the very real possibility Allagan tech has some role to play, but Allag itself is not directly related to the war. Probably.)
Reason I think Nidhogg was Shiva's lover is because it explains his unfathomable rancor. You're in love with this woman, and then her brother and kinsmen start attacking your people? She sacrifices herself to try and bring peace, only to have her brother betray their father (the rightful ruler) and kill him at a peace summit, then gouges out your eye and takes it as a trophy? That would drive most anyone to some pretty deep hatred.