The short answer is, yeah totally agree with you, there needs to be sufficient no-myth space. Or backstory can't lead to totally deterministic outcomes all the time. Not sure I would frame it that way though but then we're getting into the aesthetics of resolution systems.
If I set out the following as a description - at a certain level of abstraction - of your approach to situation-based play, how close am I? What I'm trying to do here is condense and express the impression your posts have given me:
My impression begins with Baker's "layers", where he says that even if you don't use the moves of AW, you still have the conversation. A lot of the play that you describe seems to me to be in that general neighbourhood.
Your set-up seems to involve creating a cast of PC, whom the players get to define and play, and also NPCs, who have a "position" in the situation, and have goals/motivations, like "best interests" in In A Wicked Age or impulses in AW.
When the players declare actions for their PCs that involve talking to, or potentially upsetting or otherwise "moving" the NPCs, the GM decides how the NPCs react (just like a interaction with a NPC in AW if there is no leverage to trigger Seduce/Manipulate). This is the GM's sincere artistic contribution: the GM is portraying their NPCs just as the players are portraying their PCs.
When action involves "physicality", there is conflict resolution using dice or some similar procedure (which is how In A Wicked Age handles it too).
Once the situation becomes stable, because everyone is either dead/gone/defeated or else has achieved their best interests/resolved their impulse, the game is over. (This is how I have found In a Wicked Age plays out.) There is no open-ended, ongoing campaign.
There is no secrecy or illusion, if I've understood things correctly: the GM's portrayal of their NPCs is known and visible to the players (otherwise the GM would be
expressing their vision); and the impulses/motivations/"best interests" that make up the situation are not secret (if they were, the players couldn't meaningfully engage the situation).
Anyway, that's my impression. I'm curious as to how accurate it is!