Why even put the distinction between Fallen and Kingdoms to begin with? It would simplify the game a LOT to remove these. Perhaps have an in-game alliance (like the United Nations in Civ, or the Under/Over councils in Fall from Heaven) that factions start out as. Because this game at its heart is about alternative history (You play through a timeline, each game radically different. No game will play out exactly like the books for example), different factions in each game could become part of the Fallen or the Kingdoms. This would expand the game considerably, and remove the complexity you were talking about.
I know its expensive and time consuming to even consider both options. If one HAS to be chosen, focus more on customization. Otherwise try to get as much lore-related stuff in as possible, but make sure to focus on customization.
I would like to see the following depending on which one is chosen if you go to either extreme.
Being able to create RADIACLLY different races. Centaurs, Ents, Avians (with different styles of wings), cat-men, satyrs (half-men, half goats), horns, hooves, 4 legged and 6 legged creatures. Multi-Armed creatures which can carry extra weapons, tails, blobs, bugs, you name it. Is that asking a lot? - Ok maybe not the multi-armed thing, but you get the idea
Thousands of unique quests, dynamic cut-scenes, an award winning story.