I am also running in Greyhawk. We recently converted my Age of Worms campaign to 4e.
We did a pretty loose conversion when it came to the PCs. For instance, the human cleric of St. Cuthbert became a dragonborn paladin of St. Cuthbert. The character has the same personality, the same background, the same basic story and goals, but I made the decision of letting players re-imagine characters a bit, and roll with it.
As for how do I explain things? I don't...at least not until the players ask me. Often I will consider what seems fun or reasonable to them, and riff on that. I have a few ideas floating around, pick the best one when it comes up, write it down, and move along with the game. I never felt like I had to make all the decisions up front.
Right now I have a short list of deity equivalences, have decided to use the 4e cosmology (or rather have the 4e cosmology with some Free City sages and academics theorizing it is a more complicated wheel, I am a big fan of playing with ambiguity in knowledge about the cosmos), and that’s about it. We focus on game play rather than world building.
Over the years I have run a number of Greyhawk campaigns (including the Living Greyhawk campaign) and I have found that most players who play Greyhawk are more interested in the characters they play and the adventures they are on than the what’s and the where’s of the world. Thos are far more important to DMs, adventure writers, and online setting pundits.
But then I am not a Greyhawk fan who believes that creating and adhering to a canon is a good thing. I realize I may be in the minority on that one.
