I wish I could have replied to this when everything was fresh on my mind, alas real life has kept me away for a few days...
Since I’m not sure why Nu-Hatta says Dagoth Ur brought the biters here, I’m going to ignore that (if anyone has an explanation, feel free to offer it!) and focus on the notion of the Aedra being the biters which come from the dream sleeve. The convention is that event at which the gods met and set the rules for Mundus, so to speak. This can be understood as certain beings within the dream world setting the rules for the “real” world. The period between kalpas can then be understood as a dissolution of the rules, and so a return to an all chaotic dream-state.
Interpretation of him bringing the biters here might be helpful if we narrowed it down to Dagoth Ur proper, Dagoth Ur as Sharmat or (as explored below) Dagoth Ur as CHIM/godhead/dreamsleeve inversion. This may be relatable to the aspects of the dreamer projecting themselves onto a physical world of their design, the Sharmat being the facilitator of the action. I need to do some rereading of the Sermons, though I might wonder if there's any significance in his seven brothers.
Perhaps the very fact of their consciousness of their setting those rules, of their separation from the real world, of their being 'awake' has something to do with it.
Now, Pelinal speaks to the Champion of Cyrodiil as if he has been woken from a dream (or has the CoC entered Pelinal’s dream?), in which the linearity of time does not hold. According to the Song of Pelinal, Pelinal would occasionally succumb to fits of destructive madness. When asked what these fits of maddness felt like, Pelinal would answer: “like when the dream no longer needs its dreamer.”
Second, Pelinal (and the other gods) are the dreamers, and the Mundus is their dream - treat Mundus as a sort of dream within a dream. And Mundus - from time to time - no longer needs Pelinal and the other gods.
I wondered over that line for a while and never came to a solid conclusion. I'd generally assumed your second option, relating it back to
"The powers also created Red Tower and the First Stone. This allowed the Mundus to exist without the full presence of the divine. In this way, the powers of Ada-mantia granted the Mundus a special kind of divinity, which is called NIRN, the consequence of variable fate.(http://www.imperial-library.info/obscure_text/nu-hatta_nu-mantia.shtml)" However I'm not sure how relevant it is in context.
The current world can exist without the dreamer, its as dead as Lorkhan, and it does so. Pelinal, as enantiomorph, is much more real, much more in touch with that dreamer as a reality, thus the realization that the world is going along without its consciousness has massive repercussions upon his mind - perhaps the destructive madness is his attempt to prove to himself that he's still there, that he still exists.
That is precisely what concerns me about Oblivion's ending: were we instrumental in knocking White-Gold - the hub of the Wheel, paradigm of Talos - out of commission? It seems as though someone is playing a very good game against the player: in victory they win; in defeat they gradually win.
Maybe,
"The myth of dynamic invincibility of the Emperor and the Empire has long been an unquantifiable and intimidating threat [to Dagoth Ur]..."
Ur could be the 'Dream-sleeved inversion" of the Godhead. Its sojourn from the "other" side, through the Dreamsleeve, would appear inverted, from the Mundus side. The Godhead wants control of the dream again, and Talos' presence at the center is a guard of the current world (one without a dreamer?):
... His presence fortifies the Wheel of the Convention, and binds our souls to this plane.
That would be the inversion of CHIM wouldn't it? With CHIM, a character in the dream takes the form of the godhead, with this, the godhead takes the form of a character, which connects with the "he is all things" statement. The connection with Talos also recalls the fact that Dagoth Ur had a distinct agenda to war against the Empire.
I don't think that it is a conscious action on the godhead's part though, but rather that Dagoth Ur became its inadvertent conduit to Mundus. The aggregate would be in this instance the godhead I guess, the OP mentions him seeing his own I.
That sounds right, infact that too might be what Nu-Hatta meant by 'Dream-sleeved inversion.'
Good point, I don't think it's possible for the godhead, in its condition, to take conscious action at all.
No matter who it maifests in, the Dreamer would be completely drunk with itself. Dagoth Voryn's mind must have been torn to pieces, as he gravitated closer and faster toward the godhead.
Now we've got the ball rolling. One becoming all versus all becoming one, a nifty idea. Whether or not Ur was the inadvertent conduit is up for grabs but one must admit he was heading very quickly in that direction if it wasn't actuality, that would be CHIM's inversion. As mentioned, the goal is recontrol of the dream, reunion with it, with Ur as god trying to piece back together into "one flesh" (and even one mind)
'Even as my Master wills, you shall come to him, in his flesh, and of his flesh.'--Dagoth GaresHis mind was torn to pieces, a fact attested to by both Vivec and Nibani Maesa, "he is a mad god." Going back to what I mentioned before, this would explain his uniqueness within the dreamsleeve and how he could escape the erasure. Previously I'd simply assumed it was because he was awake within it, perhaps this is the natural result of being conscious in such a state - ghosts are unconscious and remain normal, Ur was conscious and potentially took upon the godhead, or at least I think its safe to say that he took upon a state of the godhead (ie, took on its properties and ideals through exposure to it).
"Only He is Awake! Only He is Alive!" Only he is lucid, only he is not an illusion. To take a step further out on the limb, as its inversion Dagoth Ur couldn't have gained CHIM, for CHIM assumes that you can realize you are not an illusion.
While we're here, these lines have always intrigued me:
He Knows the Names and the Naming!
He Knows the Wait and the Waiting!
He Enters into every Star and Moon!
He Shines through their Shadows!
...
I see you with MY EYE!
And all is SILENCE!
I Wake! I Remember!
LORD!http://www.imperial-library.info/mwbooks/parchmentscrawlings.shtml
The first line sounds similar to the Monomyth (
"They began to take names"), the second of the dreamsleeve (whether the waiting during death as a god which Vivec refers to as being asleep or the wait between death and birth of any soul), the fourth of either an inversion of the stars or of the Serpent constellation.
The last four lines make me think of the Sixth House initiates first experience of the 'divine dreamworld', they see with the one eye in the silence of death, they wake (return from the dreamworld, with the dreamworld being a conscious recognition of the state of the dreamsleeve) and unlike normal circumstances they remember, for generally individuals memories are wiped clean while in the dreamsleeve.
Note: Whenever this topic is discussed one can't help but notice the connection between group which delve deeply into the dreamsleeve (the Dwemer with "the Calling" and Dagoth with the 'divine dreamworld). When individuals delve too deeply they disappear or CHIM, when groups delve too deeply they attempt to build a god as gestalt and perhaps disappear in the process. I get the impression that the result of this delving is a brief experience of the godhead, like an epiphany, which the individual then spends the rest of their energy trying to recreate in the form of a construct.
How long is it going to be before the Moth Priests begin constructing a giant insect which represents the gestalt world coming into rebirth.