Hi! thanks everyone for the awesome responses!
Ok, are you saying that if I play a race from the EE Player's Handbook, I'm stuck with either the core phb/ basic rules backgrounds or the assigned backgrounds for the origin story. Basically what we are saying is that If I choose a race from the EE handbook, I cannot use the Hillsfar Backgrounds. I understand the restricting some races and spells (the mechanical stuff) with newer season options. Why restrict the cross pollination of backgrounds?
I know my DM wanted to use the bonds and adventure hooks from Out of the Abyss, (she wanted to put them on index cards and pass them out randomly to those that agreed) am I not allowed to use those either?
You are not allowed to use those since those backgrounds are not allowed in your Story Origin.
The idea is to keep characters tied to the storylines that go with them. If your character is a race from the EE Player's Handbook, your race has a reason to get involved in the story because those races are extremely rare but have a tie to the Elemental Evil storyline. Plus, the theme of their race fits with the theme of that season. Maybe those races are more common in and around the area that the EE storyline takes place in.
I can't speak for the Admin's decision to restrict things the way they did but I can speculate. I'm guessing part of it is what I said above, to keep storylines "contained" and to keep a coherent "theme" in the story line. I'm guessing at least part of it was that the Admins weren't sure what options would come out and how well they'd be balanced when mixed together. That way if a new feat or spell comes out 5 years from now, it might not be overpowered if you can just take stuff from the PHB and from that new book. It might be overpowered if you were allowed to mix and match every player option released in the next 5 years.
In this way, you can constrain the power level of a character by "locking" them into the power level that season was designed for without worrying what future books might let them do. Season 3 doesn't have an new options other than Backgrounds so that doesn't necessarily apply this time, but it might in the future. So best to create a general rule and stick with it.
Plus, it's partially to encourage people to make up new characters that fit in well with the adventure you are playing. If you want a close tie to the storyline of the season, then you also get to play a race and class that is designed to fit into that season. In this way, they encourage players to always make up new characters which is good for the long term health of the campaign.
But, of course, we don't want to discourage someone from playing a character they like, so they can continue to play characters from past seasons and even make up characters from past seasons. Especially if they want to play those characters IN those seasons(since the adventures from any season can be played at any time). But, I think it is implicit that the "ideal" is that people are playing characters designed for the season they are in.