My suggestion is basically hopeful: the Empire has bureaucracy, logistics, and all kinds of other organizational inertia. Independent wildcatters, on the other hand, can probably move right into the newly exposed lands and start developing. That would let them get established by the time the Empire can get its act together and project some force into the newly uncovered areas. It might also split the Empire, where individual commanders try to become independent warlords.
The Empire might figure out that the dragons are responsible for this, and try to threaten the temples or otherwise find a way to roll back the Mists and use this to menace independent settlers. Alternatively they might go after the other two dragons and see if their power can do it. Dealing with this is of course the job of a new generation of adventurers etc.
This means opportunities for the Expedition, as well as people like Barry. It means new natural resources, but probably also vast ruins, lost cities, and other fun stuff. It could also mean weird monsters that used to be native to the Mist and are now confused and annoyed by all these bipedal weirdos intruding on their turf.
In that case, Xeric would probably play bodyguard and protector to any wildcat settlers who try to make a new life down there. He’s got no more reason to go back to his old village - and they turned him away anyway. Instead, he wants to make it safe enough for people to create new villages like the one he remembers. If those people reject him too, well, he can turn drifter.
In the spirit of offering random NPCs at the start of the game, I’ll offer random outcomes for this one. Pick one you like, write a new one, or roll a die.
- Nostalgia. She goes back to the old village of Villa Lucis and reports the fall of Pyrocaster Azure and the Empire’s setbacks, and tells them they’re safe again. She had a hand in making that happen, and can feel proud about that.
- Independence. She goes back to freelance cloudrafting, hauling cargo for wildcat settlers and independents. If she hears about trouble, she’ll come back and ask Xeric and pals for help dealing with it.
- Homestead. She finds a place to settle down, and may or may not invite Xeric to visit and/or live there on woefully vague terms. Xeric would probably accept if asked, but will continue to be a little dense about whatever it is Gwin is putting down.
- Team-up. Realizing that she agrees with Xeric about protecting innocent civilians, she joins him in keeping settlers safe. She will still kick him in the head if he takes unwise risks, but he’ll show definite improvement.
- Organization. Realizing she kind of enjoys this whole aerial ass-kicking thing, she joins a group - a league of mercenaries, air pirates, or something like that - who will go up against the Empire and/or look out for the new lands. She’ll invite Xeric, who will happily come along in search of continued opportunities for assbeating.
- Business. She takes up a role in Foothold or elsewhere, parlaying her experience into running a small fleet of cargo cloudrafts.