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Here is what I have so far:
Inselberg factions
Elric faction - Fort-based Faction
Yrkoon faction - Fort-based Faction
Admiralty faction - Fort-based Faction
Vanguard faction - Islet Faction
Rebel faction - Islet Faction
Purple isles faction - Islet Faction
Phum faction - Islet Faction
Northern traders faction - Islet Faction
Southern barbarians faction - Islet Faction
Chaos faction - Shadow Cult
Order faction - Celestial Cult
Tanalorn faction - Pere di Fey

Faction identities/issues
Tradition vs progress
Trade vs safety
Military vs civilian
Nobility vs freedom
Shadow cult vs celestial cult
Chaos vs order
Hedonism vs altruism

Faction Characters:
Edward (Elric-analog) - Goblin, member of the Admiralty Collegium. Concerned about the Islets in a way that is incomprehensible to the rest of hte Admiralty
Arioch (Yrkoon Analog) - Goblin, member of the Admiralty Collegium. concerned about securing the power of the Admiralty Collegium. And maintaining their tradition of dominance.
Cymoril - Elf, Cousin of Edward and Arioch. Long-standing Prefect and Liason between the Senate (I forget the name and my book is at home) and the Admiralty Collegium.
Thanatos - Human, Magistrate of a Shadow Cult Collegium.
Conrad - Human, Magistrate of a Celestial Cult Collegium.

  So basically, hidden away on the main fortress of Inselberg is a pack of Goblins that look like elves (ok, melnibonians, but the differences are minimal) and they form the Admiralty Collegium. decadent descendants of the Admirals that ran the fort. As the descended into hedonism, the Star Captain Collegium stepped forward to maintain the Black Fleet. And the Senate (I am sorry, I still don't have my book), stepped forward to maintain the government. And a careful balance has been struck. The Admiralty ruling from the shadows, the Senate wrangling the islets and the Captains, maintaining the fleet. Until Edward was Born. His title of high admiral allows him great power and privilege. But instead of indulging in his addiction to power, he is concerned about the islets and the future of Inselberg. Arioch will have none of that, and so a major conflict is about to blow up in Inselberg.

  What do you guys think? what is missing, what is too much? What is just out of place for Near?

I like this sort of stuff, the brave mixing of two literary sources is sure to provide strange inspirations along the way. I especially like that Cymoril is an elf, and the idea of goblins that just happen to look a lot like elves is just too funny. Were I SGing this, I'd definitely have these literary NPCs run on their merry way, very strongly pushing for their archetypal story. No need for them to even get mixed with player characters if those don't swing that way, the SG could just narrate here and there how the high admiral has disappeared, reapparead, been replaced, killed his cousin and so on. Up to the players whether they'd want to stand in the way of destiny.

I take it that the Shadow Cult and Celestial Cult are Inselburgian views on the mainland Maldorite religious conflict. The Shadow Cult is crunch-wise pretty simple (doesn't even need formal magisterial vows, really, unless you want them), but what do you think, does the Celestial Cult have any tricks up its sleeve? The imperial religion is pretty notorious for having very little in the way of magical tricks.

Oh, what sort of magics does Edward wield? I'd probably go with witchcraft, Three-Corner is pretty mechanical and cold for such a character. Perhaps one of the last worshippers of the Horned God - he has plenty of similarities with Arioch, after all.

Eero,
  I kind of see Edward and Arioch as Eclectics. It fits since the sorcery of Melnibone is based on ancient pacts rather than universal energy or anything like that. Maybe that is the addiction Edward has, he is addicted to collegiums... And Arioch is addicted to Power, for sure.

  I think that there will be a strong interaction between Edward and the party as one of the players is a huge Elric fan and another is fascinated by my portrayal of Elric as a Fay in my Exalted campaign, lol

  So, I need to make these characters fun to interact with. And give them enough of a twist that they will not be boring and predictable...

Also,
  If I remember correctly, there was a Shadow cult/skyfire cult written into the Inselberg Writeup. I intend to use that pretty much as written. I introduced the Celestial as their polar opposite. Probably not needed for every Inselberg campaign, but definitely needed for this campaign.
  I intend for the Celestials to be in heavy contact with Celestials in Maldor for support, inspiration and stability. While the Skyfire/Shadow Cult to have evolved organically based on the environment they have been isolated in for centuries.
  I definitely want to make both of them a Collegium, as that seems to be the magic du jour for Inselberg. And it also seems to be the core of politics and identity in Inselberg.