So my plans for my Mortal Coil are:

Run the game into a "Season finale" (Current situation is resolved, new situation develops) and present the choice to the group to either A) Continue the Mortal Coil game, or B) Play something else.

Assuming they choose A, I was thinking of performing a little set-up to 're-focus' the game, being:

We make a new Theme Document, incorporating how we have/want to drift the general workings of the setting, and a brand new Situation, which may provoke new characters if the old characters don't fit into the new Situation.

After that, we go through the previous Magical Facts and pick the best ones (Maybe around 25% of them) and move them over to the new game, while leaving the ones not picked as possible new inclusions if the time is right.

Can someone with more experience tell me if this is dumb or broken or what?

This is an interesting approach, and I think you've got some good instincts. In a long-term game, you could end up with a really overwhelming number of facts on the theme document, and envisioning a new take on the world for a new "season" of play sounds like a cool way to deal with it.

Let me know how it works out!