Rough Gist: Kagrenac knew exactly (or close enough) what he was doing at Red Mountain, though I doubt he was as prepared as he'd have liked, and was certainly not working under the conditions he'd liked. I guess the hordes bearing down on Red Mountain kinda threw a cutting-globe in the whole plan. Why is Yagrum Bagarn the last living Dwemer? It's not coincidence, that was ALWAYS the plan. He was in an outer dimension (IIRC, it was mentioned somewhere that these are outer dimensions in the sense they don't exist in the normal structure of the Wheel) because that's the only way he'd be able to survive the race-wide metamorphosis into Numidium. When he shows up at Red Mountain after the battle, Bagarn finds that, lo and behold, the battle was lost. One thing that always troubled me was the mention of Orsimer mercenaries at Red Mountain; the Orsimer are descended from the followers of Trinimac, meaning the orcs of Nerevar's day likely hated the Chimer something fierce, and were probably also extremely hostile to the Nords as well. Why would the Nords and Orcs cooperate, when the Orsimer were followers of Trinimac/Malacath? My theory is the Orcs showed up not to back up the Nords as mercenaries, but to back up the Dwemer. How else would Bagarn have been able to come back and access Kagrenac's tools post-Red Mountain, if the entire force keeping the Chimer and Nords away from the Heart had been transformed into a dormant robo-god? If this were the case, the Orsimer obviously had quite the epic fail, and if not, Kagrenac left a rather glaring hole in his plan, which I find unbelievable considering Bagarn remarked to the Nerevarine that Kagrenac was more or less one of the most brilliant minds of his day.
Regardless of the pork-mer's involvement, Yagrum Bagarn comes home, and finds the battle lost, the tools nowhere to be found, the world around him crawling with his mortal enemies. While probably looking for the tools around Red Mountain, he catches Corprus and begins degenerating into the sore-covered vomit-inducer we see beneath Tel Fyr. Might even be possible he caught Corprus from Dagoth Ur himself trying to access the Heart Chamber. As can clearly be seen from playing Morrowind, Corprus apparently wreaks havoc on your mental capacities, meaning Bagarn probably just forgot what he was supposed to be doing, only remembering after the (presumed) destruction of Dagoth Ur and the end of Corprus. Hence a statement afterwards (out of game) from Divayth Fyr that Yagrum Bagarn became more and more lucid post-Nerevarine. Then Bagarn remembers he's several thousand years late to finish his mission, and now has to hunt down those tools and go find the Heart of Lorkhan again. With the framework of Numidium already apparently complete and only lacking the power source, finding the Heart of Lorkhan may be the only thing Bagarn needs to do.
The Nerevarine is conveniently sent on a "secret mission" to Akavir not long after, presumably still bearing Lorkhan's tools. Yagrum Bagarn suddenly regains his wits, and realizes what he needs to do. Nota Bene: Yagrum Bagarn was specifically chosen to carry out the final steps of Kagrenac's plan. Dumac might've been king and Kagrenac might've been the most brilliant of the tonal architects, but to be chosen for that duty, Yagrum Bagarn couldn't have been some random grunt. No, Yagrum Bagarn is/was likely Kagrenac's equal or close second in terms of talent. This is the guy who knows how to finish Numidium and is hellbent on doing so, and the Nerevarine is the poor fool standing in his way. The whole "we're going to will ourselves out of existence back to the origin of things" seems to have a lot of similarities with the beliefs of the Thalmor... Wondering what happened to the Nerevarine? As the last living member of a terrifyingly powerful and brilliant race, and almost certainly one of the greatest minds of his day, Yagrum Bagarn would definitely have followed the Nerevarine to Akavir the second he caught word of that (For a "secret mission", it seems an awful lot of people in the Empire know the Nerevarine went to Akavir) and probably left him/her dead in a rice patty after taking a cutting-globe to his/her skull (which sounds like a totally awesome showdown: the God-Killer vs. the God-Maker), took the tools, and... What? Where's Bagarn now, 200 years later? There's no reason to believe the third-most powerful Dwemer of his day would be incapable of living as long as he pleased. He's hunting for the Heart of Lorkhan with Kagrenac's tools in tow.
I think the story of the Dwemer and their agenda is far from finished.
If one were interested in opposing the Thalmor's agenda (Which, like the Dwemeri agenda, almost certainly spells disastrous consequences for everybody else), they'd best make sure they find Bagarn and skin him like a netch, trap his soul, cremate his body and bury that soul gem before those two parties make contact.
Again, it's been a long, long time since I've actively read the old lore, so I might've made some errors here and there, but I'm pretty sure that more or less sums everything up. Thoughts, questions, frothy declarations of rabid hate?