Allegedly the Daedric princes kidnapped him to put him on trial for being a false god during the Oblivion crisis.
You're mixing up your rumors. One says that the Daedra kidnapped him during the crisis, the other has him put on trial for his crimes and subsequently vanishing (after exacting revenge on Azura, revealing the truth of himself and Nerevar's murder, and delivering several spectacular speeches).
The Trial, btw, can be found http://imperial-library.info/content/forum-archives. Freshly refurbished for maximum effect.