The Elder Scrolls Online/WMG

TES Online does not take place in Tamriel

It takes place in Coldharbour, which has already been said to be a cruel mirror of the real Tamriel, your characters and others just think they're in Dawn's Beauty rather than Molag Bal's Arena. It handily explains the oddities with the set-up, explains away the problems with the handwave justification for being able to come back and is perfectly in the Corruptor's perview.