I've never read a detailed on the ground examination of what life in Istar looked like (it may have been written, but I've only looked at the overviews of some gaming sources), but I make some assumptions that are probably at least subtle changes from original intent, and it makes it work out all right.
1. The Kingpriest and his thought control regime was evil, hiding behind a facade of good. What once actually was a good society had become corrupted to evil.
2. From a cosmological standpoint, the society's crimes were at least twofold: pushing evil out of balance into extreme prominence, and compromising freedom of moral choice--both big cosmological crimes in Krynn.
3. It wasn't just the Kingpriest; most of his people had been corrupted at this point (many opportunities to change having been offered is a good inclusion).
4. This situation was spreading and was powerful enough that it was (in the foresight of the gods) going to take over the world.
I kind of see that as all one thing, even though I parsed it out as four points. So the Cataclysm was invoked to preserve a cosmic balance that prevented worldwide loss of freedom of choice and domination of evil. The way the world would have looked for people living in it in a few years without the Cataclysm would have been worse than with it. And the final sub-point:
5. The Neutral gods (champions of balance and freedom of moral choice) were at least as much involved as the Good ones. The Good ones went along because they saw that the overall suffering would be worse without it, and because they recognized the value of the Neutral gods cosmological place.
That makes it work well enough for me. I'm not sure how much change that requires to the official take. I'd just say that the old official position was lies spread by the gods of Evil.
