Okay, so the thalmor's main plan is to oust talos, undo man, and ascend off mundus.
The question I have is, IF Dagon had won in oblivion, would him making mundus into a plane of oblivion basically do what the thalmor wanted?
By changing/erasing the earthbones into an oblivion plane, wouldn't that have gotten rid of talos since u are getting rid of the spot that its holding for lorkhan?
By changing it to an oblivion plane and since the realm is destruction, woukd wiping out all of man/mer/beastfolk/etc basically do the same thing as undoing man?
So with the destruction of the earthbones/lorkhan and by having all of the humanoids destroyed basically do what they intended and that the mer would be freed from the shackles and ascend once more into the heavens?

The Altmer want to undo all of creation as it is since the Convention.

That includes the realms of the Daedra.

So no. Dagon's victory would have only made things even worse from an Altmeri viewpoint.

Their souls would have been turned into daedric playthings.

But the daedric weren't part of creation or even participated in the creation process. They existed before creation.
The elves call the daedra "not our ancestors" and call the.....dangit mindfart...the ones who are the earthbones "our ancestors". Their ancestors were tricked by lorkhan and bound to mundus. The daedra exist outside of mundus. By ousting talos and lorkhan doesn't fill the spot anymore, the "chains" that hold their ancestors are no more and are freed.
I'm just wondering if Dagon had destroyed the world and the plane of oblivion took over, if that would infact have freed the ancestors.

Dunno, got this really weird thought in my head that mankar was bethesda attempt to give us an insight into the thalmor ways or was in fact acting off thalmor principles etc etc. If there was something deeper.

Elfoney is I believe is the term you're looking for which are Aedra, but not all Aedra are Elfoney.