Interesting. Reading through the posts on this thread, there seems to be a lot more confusion about the plot than what I would have guessed. Seemed clear cut to me:
1. Engwithians wished to find the gods, to find the true meaning of their existence and the purpose of life. After tonnes of searching they failed, finding nothing. This terrified them on an existential level (Thaos describes accepting that there is nothing as a bit like the worst thing he could imagine).
2. To 'save' themselves and the rest of the Kith from a meaningless existence, they create machines that allow the majority of Engwithians to sacrifice themselves, in order to manufacture from their soul energy a set of 'ideal' gods, representing various ideals of life and death, good and evil. The gods they wished they had found.
3. Thaos and the remaining Engwithians spread out as missionaries to spread worship of these new gods, 'gifting' the rest of Kith with purpose.
Whether or not Thaos allied himself with Woedica at this early point is unknown - there is some suggestion he did because when his people was sacrificed he dreaded the 'long' path ahead. He might have just been considering the time spent as a missionary, but in any event he eventually allies with Woedica so that she can bring him back whenever he dies with all his memories. Other than that, its very much that Thaos is using Woedica in exchange for helping her with her own goals: the Engwithians created all the gods, and its possible Woedica was designed to be sympathetic to Thaos' objectives.
4. Iovara discovers that the gods are manufactured and starts a rival faith denouncing them. While Thaos and the Engwithians thought life without purpose horrifying, Iovara thinks devotion to the gods is life led in service to a lie, possibly obscuring the actual truth of existence that the Engwithians refuse to face.
5. Your past life, having been a convert to Thaos faith, causes you to betray Iovara while also learning the truth. Your betrayal (at least for my character) and psychological dependency on Thaos are what cause the 'trouble' in your soul, eventually leading the events of the game.
Thaos lives through the millennia, using forces like the Leaden Key (which he created) and acting as a free agent, leveraging an alliance with Woedica to give him power and immortatlity, in order to keep the origin of the gods secret and to ensure that they are still worshiped. Even though his atrocities are terrible, he believes (and to a degree, has no choice but to believe having gone so far down this path) that whatever the cost, the alternative bleakness of a pointless existence would be worse. The gods are the 'gift' he and his people sacrificed to provide the world, and he wants to protect it.
Eothas invading, Magran striking back and so forth is because they are following their own ideals (Eothas preventing the hollowborn epidemic, Magran striking down an avatar) etc, but also serves as a bit of a justification of Iovara's position. THe gods are just blind personifications of whatever short sighted philosophies the Engwithians thought humanity should worship, and in pursuit of their purposes they can hurt and destroy so much: vis Eothas/Waidwens clumsy and destructive invasion of Dyrwood, or Magrans blunt interception that allowed the Hollowborn epidemic to start.
Why the hollowborn scheme of the Leaden Key? Partly to further discredit animancy, which as others have said would eventually allow the unravelling the God's true nature. Also possibly to shore up Woedica's power, to make her a better and more loyal ally to Thaos. Possibly to shore up people's faith in the gods after one has been slain: if gods can be killed, they're possibly not really gods. However if a god dies and a nation suffers a terrible curse as a result then that is a strong argument for divinity, and human sin.
I don't think there is many holes in the above. Thaos' motivations were well thought out - and the central question is whether you believe his actions and that of his people were truly worth the cost - whether kith should be exposed to the emptiness of their own existence, and be allowed the agency to take their own actions accordingly.