1. How will adapting the creation myth to different cultures work? It would be odd if goblins, elves and humans all had the exact same creation myth.
That gets into complicated questions of what "myth" really is, and how they evolve over time. I would imagine that there would be roughly the following categories:
A) No connection to reality or history, made up by some entity (deific, historical, or mundane) for some end
B) A more-or-less garbled over time version of what happened, but focusing on one sub-aspect that is particularly relevant to the culture or some powerful / influential entity. (The stories of the mushroom people may gloss over anything that happens on or to the surface world, while spending pages on the Wafting of the First Spores.)
C) A more-or-less garbled over time version of what happened, but significantly twisted or re-interpreted by some culture or powerful / influential entity to further their ends. (Consider the whole "Han shot first" controversy, as well as many real-world controversies over history I deliberately do not mention here. Wars of the gods are unlikely to be *less* controversial than human ones...)
D) A more-or-less correct version of what happened. In rare cases (e.g. a God of Knowledge and History) this may be pushed out early on by someone who was there; but in most cases it is probably only available later on when some knowledge-collecting entity or organization has the ability to compare versions and create a "consensus" history via years of scholarship.
2. Will the myth generator be able to generate extremely advanced/magically potent 'precursor' races (I know, it's a sci-fi term, but I feel like it fits here too) and how would they be balanced? While it would be cool to have a race of basically omnipotent reality-bending lizards in the myth story, if they persisted in 'recorded history' (the playable time) in significant numbers it would probably be obscenely unbalanced and they'd be able to curbstomp everyone else.
Note that in some (I would argue "most", even) interpretations of DF, *you* are the precursors! The dwarves delve improbably deep, build exotic and puzzling mega-projects with seeming disregard for economy or common sense, lash out with ludicrous overkill against minor slights, fight monsters from before the dawn of time with legendary warriors equipped with armor and weapons made from the very structure of Hell itself, and craft normally impossible works of art and craftsmanship.
Consider... "This is the 'Treasure Room', suspended out over the magma sea by a single thin strut of polished obsidian, engraved with the stories of the First Age. In it are a full-sized bed made from a single yellow diamond, a giant cave spider silk sock that was used to slay an ancient dragon, and a sword made from a mystical blue material that is unreasonably light and sharper than any physical substance could possibly be. Access is guarded by a hatch cover impervious to any known attack, which appears to made from unicorn soap. Legends say that if the ancient lever made from crimson petrified wood in the back room is ever pulled, the 300' tall dwarf statue that stands over the entrance far above will spew forth such a volume of lava from its upturned mug that the surrounding county will be utterly obliterated."
The world-clock starts at 0, unless you choose to let it run for a while; if you want a world with a Khazad-dûm, it is up to you to delve it, and let the lesser ages to come wonder at the folly and skill of the dwarves of the First Age.
(Of course, more prosaically, there are other many other playstyles and interpretations; and with the advent of new starting scenarios and procedural myths this may become less common. But to me at least, this is the heart of DF.)