I unfortunately will be basing everything off of walkthroughs, as I simply CAN NOT play arena - the controls are stationary and hard to get used to. I can't even get past the first dungeon, due to additional lag.
When you use the elder scroll to learn Dragon Rend, you create a small hole in time when Jagar Tharn was defeated and Uriel Septim returned from oblivion.
This makes a historian angry, as it is blacked out in the books, and no one can create a mental memory of such even after reading it. He has been working on a scroll to send you back in that time, and uses the spell from the scroll on you. You are then under the Imperial Palace, ready to fight Jagar Tharn.
I can't do the rest, because if I were to make exteriors, it would have to be accessible from simply swimming from Skyrim to the quest areas.