Ultima/WMG

The Gargoyles were weeks away from defeat when the Avatar created the truce.
They were running out of the two items that made them "Balrons." An Yelm potion, their "sleep breath" was Lost Technology to them; and what gave them such utter power and strength in battle; silver serpent venom; wasn't feasible anymore since it killed any who ingested it and they just did not have the numbers to justify We Have Reserves. Hence the supposed previous invincibility of their attack; and their total lack of threat in gameplay. These two factors also are what lead them to creating a gate to summon the False Prophet to kill him. They were desperate.

Gargoyles were created/altered by Mondain to be the vessels for Daemons to become Balrons. Time Travel freed most of them.
Supposedly Ultima 6 explained that what we thought were the most evil of the random monsters in 1-4 were a "simply misunderstood" race whose sleep powers were due to a potion they carried around, and super strength from a drug that killed them after they succeeded in battle. If this is so, they've totally succumbed to Lowered Monster Difficulty in U6. However, there is an alternate explaination. The original Ultima 1 had the Stranger/Avatar going back in time 1000 years before Mondain becomes immortal to kill him. Mondain was terrorizing Brittania for a millenia in the original timeline. It's stated in the U1 instructions that before Mondain came, demons didn't exist. Mondain enslaved the Gargoyles, and gave them as host bodies to the Daemons who would become Balrons. Balrons could travel through dimensions, so were immune to the change when the Stranger/Avatar went back in time and killed Mondain. In the new timeline, without his influence, the Gargoyles relied on the Codex to purify themselves, and the "Time Orphan" Balrons were eliminated when the Codex's influence was brought to the surface world in U4.
 * The later "Wingless" Daemons in Ultima VI are Daemons who possessed a human, and decided to stay in their body; modifying it for their own purposes. This is why they start leaving bodies; it's the modified body.

Minax's powers came from fusing Earth with Britannia.
This resulted in the three other continents being permanently sent to other dimensions, and why U2 takes place on Earth. Even after they were separated, the "damage" resulted in the Moongates; with the Moonstones solidifying eventually. Reality reshaped Britania's memories of the events to exclude Earth.

The Time Lord is not a Timelord.
He is simply a normal man that secretly siphons power from whichever Big Bad currently plagues Britannia. Guardian, being smarter than the others, noticed this and locked him up in the Shrine of Humility. Not wanting to admit his weakness to Avatar, he gives him the hourglass and tells him to get Nicodemus to repair it. Nicodemus does so - using a lot of magic in the process. In reality, the hourglass is nothing more than a container for magic. When Avatar returns the hourglass to him, he draws the magic from it, and eventually escapes.

In Ultima 6: The False Prophet, the war against the gargoyles is a big hoax.
The Avatar goes ALL OVER Britannia, including the gargoyle homeland, and doesn't find a single battlefield.
 * Not to mention...nobody mistakes the Gargoyles for Daemons. ...nobody at all. Despite this being the BIG TWIST and Retcon that the Balrons you were killing back in Ultima IV were "just misunderstood."

Mondain is a Sith Lord.
Look at the way he fuses technology and "magic" (i.e., the Force). He has an apprentice. The protagonist of the first "Ultima," who goes up against him, has to become a "space ace" by shooting down enemies who are quite clearly TIE fighters.

The Lizardmen's language seen in Ultima Underworld is more complex than what is presented in the game.
If you work out the Lizardmen's language, it appears to be simple Hulk Speak. However, remember that the Avatar has only just started to learn the language, and until recently was unaware that the Lizardmen even had a language. Hence, when he listens to them, he isn't really going to pick up everything they say; rather, he just gets the key words in the sentence, and works out the meaning based on that. The dialogue presented it just what the Avatar hears, rather than what the Lizardman actually says. This is how most people understand second languages.

Thus, it's likely that the Lizardmen perceive the Avatar to speak their language poorly and haltingly, but appreciate the fact that he is at least trying.

Dungeon Keeper tells the story of the Guardian conquering Britannia.
Consider how the Guardian banishes the Avatar to Pagan at the end of Serpent Isle, and when you return to Britannia at the end of Pagan, it's a hellish wasteland. Dungeon Keeper tells the story of how the Guardians minions take over the world and turn it into a wasteland, and culminates with the Avatar returning from Pagan and making a valiant attempt at stopping the Guardians minions, but is defeated (but escapes and plots a way to overthrow the Guardian... until Ultima IX...)