To be honest, I found that vision by itself to be rather strange, not least because they didn't craft a new history of what happened on that day. What happened on that day is that Haldrath drove off Nidhogg, and that's exactly what they publicised. As far as I can tell they never directly lied about anything. They omitted certain facts - that Thordan slew Ratatoskr, that they consumed Ratatoskr's eyes, that Haldrath took both Nidhogg's eyes not just one, and that three additional knights survived and renounced their nobility - but the basic history was, well, quite true. Nidhogg killed Thordan, Haldrath drove off Nidhogg, Haldrath renounced the crown, and the four remaining knights set about ruling Ishgard in stewardship.

So I have some trouble with what Sylvetrel might have meant there. What truth did he feel had to die? Surely nothing about what they'd done on that day itself? Does he mean specifically that Haldrath refused the throne in penitence for Thordan's crime, since publicising Thordan's crime would cause civil unrest? What did Sylvetrel or Haldrath even understand Thordan's crime to be? (I have never quite been able to get it straight what happened then. Thordan killed Ratatoskr, yes, but the context of that act and Thordan's motives have been relatively obscure.)

In any case, I suppose I think you are pinning a lot on one somewhat obscure phrase. I also find it a bit difficult to posit that Sylvetrel (and Flavien, Geunriel, and Driancoin) began this huge conspiracy then, at a time when Haldrath and the other three surviving knights were still around to contradict them. At the least, those four other survivors must have tacitly consented to whatever the four founders did, and that suggests to me that the founders weren't too blatant. I also understood the Knights Twelve in general to be men of relative integrity, Thordan's crime aside, which furthers my preference for a gradual evolution.