From what I recall, the gods DID use avatars. Fizban was Paladine, Reorx used the form of a dwarf named Dougan Redhammer, Gilean was Astinus, and the story explanation for Takhisis being unable to come into the world was the gemstone Berem possessed left the foundation she needed incomplete which is why the Dragonarmies were after him. It's been a bit since I've read the old material but iirc the lore reason the gods didn't directly interfere (e.g. Paladine taking the form of a platinum dragon and fighting the evil forces) was the balance going too far one way causing the risk of destroying the world or something like thatActually, the solutions suggested do work.
The Kingpriest himself causes the Cataclysm - the ritual he tries to make himself a god fails and BOOOM. Istar is a crater. Moral of the story - don't try this at home kids.
You still get a Cataclysm, the whole Old Testament links are erased and the setting largely continues as is. There is nothing inherent in the gods smiting the Kingpriest that makes it necessary for the setting. Frankly, that's probably the least interesting (if the most contentious) element of the setup. You need the Cataclysm or the whole setting falls apart, but, the exact reason for it isn't all that important.
In fact, this way, very little needs to change. The Gods still warn the Kingpriest not to do it - but, are not allowed to directly intervene because the Balance must be maintained - if Paladine directly steps in, then Takhisis and everyone else can do the same and it's a much larger conflict with the gods taking a direct hand in things. Soth still fails and that whole story line is maintained. And the setting functions largely as it was.
Something to remember is that this is very much NOT Forgotten Realms. The gods in this setting do NOT directly appear. Even during the War of the Lance, Takhisis never actually arrives in Krynn (at least, not until possibly the very, very end). The gods never take the field and they do not have avatars, AFAIR. Fizban pops up, sure, but, again, takes no actual direct role. Only advises. ((Well, the line on that one might be a bit blurry, but, you get my meaning I hope))
I actually pretty much approve of this approach. It's a fairly minor change to the canon of the setting that smooths things over nicely and, honestly, probably makes more sense.
Edit: Ariakan was the son of Ariakas and the goddess of the sea, Zeboim also.