Force them to worship you, and sooner or later you'll be more than king, but their god. And unlike the real-life cases, it'd do more than cast an impression of godhood. Seems to me like Mannimarco has been fighting the Mages Guild for some time, trapping the souls of their leaders, for whatever purpose, likely building his power while eliminating the organization that more or less controls magic on Tamriel. As the Divines are retroactive, all he must do to stop Arkay is to destroy worship of him.
When he's one of the most popular gods on Tamriel? That isn't going to happen by lopping off heads and making martyrs alone. We know his war was two-pronged, or
simply: as above, so below. One was on Tamriel, the other was in the heavens, but they were part of one war. Mannimarco learned how to win from the Selectives.
Still interesting, but I don't know of any evidence that validates it (if you can provide sources, I'd be grateful). Spirits describe whatever lies beyond as more pleasant than Nirn.
Like I said, some spirits are protected by special rules and not bound to the Dreamsleeve at all, but to their aligned AE: a god who they were dedicated to.
And when you can steal souls there's no need to even bring the Dreamsleeve into it, you can just take the souls straight from the body, no conjuration required.
No, the God of Worms wouldn't take the souls from the Dreamsleeve, he'd simply allow it dry out, because his godhood would starve it of souls, since they would be bound to him. The Revenant Moon still shares a space with Arkay, but had Mannimarco succeeded in Oblivion, the God of Worms' special rules would apply to the mortals, because he would be taking Arkay's place. His power was not what it could have been. The need to steal souls would end with Arkay, because there would be no other to steal from.