I just startedup a AOW campaign on RPOL (which will hopefully come back online someday). Most of my players were in kindergarden when I last DMed, so it should be interesting! Since they are all about graduate from college, I feel very old. We're sticking to PHB for character creation (although I own most WoTC sourcebooks, I'm trying to keep myself sane). Yes, I know that may seems limiting, but if you really feel the need to pester me about it, go ahead. The campaign will be set in Greyhawk.
Anyway, I asked my players to come up with characters whose primary background revolves around Diamond Lake. I haven't gotten background from everyone, but I already have a Gnome Bard and a Halfling Druid. The Bard is originally from Grossetgrottel, which despite what the Dungeon says doesn't seem any more "nearby" than Greyhawk. He is just starting out his career, and (for wont of other job opportunities) is working at The Feral Dog. My plan is for the bard to overhear interesting rumors at the Dog, including speculation that there is probably lots of interesting stuff in "that other cairn that the kids used to explore". He'll probably also hear how the Bronzewood Lodge is investigating rumors of odd green worms, and anyone who needs "one of them rangers or duids" to help him out just has to pretend to know something about such things.
The druid is an interesting study. We rolled ability scores, and the Druid got some really high scores and some ugly scores (7, 8 & 9). He plans play the druid as a sort of ecoterrorist - someone who has lived almost all of his life alone in the wilderness and just doesn't get along with civilization and its treatment of nature (hence low charisma). He even came up with the idea that he "liberated" his riding dog companion from the Feral Dog (which fits in great for me)! Anyway, the druid will be a member of the Bronzewood Lodge, and he will soon be assigned the task of investigated rumors of worms that create undead.
One of the other players plans to play a ranger, so I think it makes sense for Bronzewood to assign him the job of keeping the druid safe (and out of trouble). Someone else wants to be a paladin, so my thought was that he would be a local working at the Chapel of Heironeous when he receives a vision that he should help the druid in his quest. I've got a fifth, and I heard a rumor he plans to be a monk; I have no idea how to handle that yet.
Anyway, short answer is that I followed the magazine's advice and tried to make everyone start in Diamond Lake. Despite what was written in Dungeon, however, I thought it took some work to come up with reasons why some kinds of characters would be from the Diamond Lake area, especially non-humans. I also think that finding a reason for a diverse lot of characters to get together in the first place wasn't a simple thing (but then it never is).