Hmm....after digging out the old greyhawk material and the dragon archive for the Sorceror Scroll, I hadn't really considered Mordenkainen as the Major (Secret) Villain of the setting. In retrospect he has 'secret master' written all over him... thinking seriously that it might make a great campaign arc whenever my current one ends.
If the purpose of the Circle of Eight and its predecessor the Citadel of Eight was to maintain a balance of power to help keep stability and sanity in the region, given the results I don't think either fellowship could be regarded as a success. Mordenkainen was apparently the primary founder of both groups, the Citadel breaking up because of ideological disputes and friction with Tenser (who blamed M. for Serten's death at Emridy Meadows). From an mastermind perspective, it seems more logical the purpose was to keep tabs and direct\manipulate some of the most individually powerful personages of Oerth willing to work with others (thus a potential threat to the most powerful Arch-Mage in the setting).
Roughly a year before the opening events of the Greyhawk Wars, the entire circle was slain by Halmadar the Cruel in his crypt (Vecna Lives!) except for Mordenkainen who was not present. Heh... maybe he called in sick that day, but it was a job that required the attendance of the rest of the Co8;-). The canon has it that it took some time for Mordenkainen to clone his buddies back to the living... which I thought was a bit odd considering most uber level characters usually (and should) have their own private contingencies\insurance in case of accidental death (in the realm of save or die spells and other instadeath effects it's a play necessity for a long term characters). Not to mention, Clone IIRC only takes 30 days to grow and I find it hard to swallow Mordenkainen didn't have a few spare wish items laying around in his Obsidian Citadel (M. might not be generous but some of the Circle are supposed to be boon companions, not to mention trouble was brewing). Granted, the Halmadar situation was a bit contrived but it's what we have (hey, entire books have been written to justify Star Wars canon;-).
Anyway, had the Co8 been in play, Iuz's Vatun plot probably would have been easily revealed and disarmed by the Circle... intervening in that matter would fit the group's mission statement;-). Actually, M. probably should have been aware of the situation and been able to solo it, given his supposedly extensive spy network not to mention arcane toolbox. That would have been boring though, but I find the IC explanation that 'he let it happen' more logical than 'he was busy watching his comrades grow in vats'.
Going up to the Great Signing and Rary's betrayal in the Great Hall. Given the tide was just starting to turn against the overstretched forces of Evil, I don't see why the Co8 would be behind the idea of a treaty that would allow Iuz and the Scarlet Brotherhood time to consolidate. They had a long history with Iuz, and the demigod certainly was a mega threat to their goal to 'maintain a balance of power to help keep stability and sanity in the region'. The front-line players may have been 'exhausted', but there were still untapped reserves in the fight against Iuz (and the Scarlet Brotherhood and Ket). Granted, on the design\play perspective it's more interesting to have Evil a bit more ascendant and unleashed than the Cold War containment feel you had before the Wars, on an IC a little reasoning why the Co8 (who hold quite a bit of power in the Free City establishment) would get behind a peace deal is a bit of a blank spot.
Onto Rary the Traitor. As for his study of Iuz, the Scarlet Brotherhood, and the Overkings it is in the same breath explained-
"...Rary realized there were things to be learned from these individuals. If he could control the base urges and character flaws that had led these others astray, perhaps he could achieve greatness, and even surpass the exploits of those in the past. With the Flannaess, or at least a large portion of it, under his control, he could bring change and overcome the meaningless bickering of the Circle of Eight. this enormous change in Rary's temperament took place slowly."
He studied those groups for their mistakes as well as successes. From rereading Rary the Traitor, emulating them and their path to power was not part of the game plan. If he was emulating anyone, it's Vecna with Robilar as his Kas (whose center of power was close to Ket). Arguably the most successful evil empire in Greyhawk canon, only falling eventually because of the 'Evil is Consumes itself' trope.
His goal in the Great Hall was to kill the diplomats to prolong the wars and at least half of the Co8 so he could seize control of the Circle. Since Mordenkainen was the leader of the Circle of Eight and the most powerful arch-mage in the business, you'd assume Rary would be poised to eliminate Mordy as the highest priority. Or at least having some sort of strike force ready to hit the Obsidian Citadel if only to disrupt M's death contingencies. I would think it would be logical for Rary to have a full-on alpha strike prepared in case Mordenkainen didn't show for the Great Signing or more likely would have some contingency in place to survive his initial planned attack and fled back to his sanctum. Even with his plan gone awry, I think it's plausible that Mordenkainen would realize that Rary would not have attempted such a thing unless he knew where the Obsidian Citadel was located (and thus a major threat) and Rary would know he have nothing left to lose because if he didn't strike the Arch-Mage first, Mordenkainen would be coming for him. Either way, when the dust cleared either Mordenkainen or Rary should have been permanently dead by the end of the episode...
The fact that Mordenkainen let Rary build in the Bright Lands fairly unmolested as far as I can tell, just lends itself to conspiracy theory and plotlines. Considering also that Robilar was probably M's most constant adventuring companion and it is established that M. is more than willing to resort to evil means to manipulate events, Rary is a good candidate as a cat's paw for some long goal of Mordenkainen. Not to mention, Mordy sports a very pointy goatee...
