I have to say, Riesen has the best ideas when it comes to improval and new features on this server, too bad we can't see them at work always.
I'll try to stick only to this thread idea.
I really miss the times when I first met tibia, on 7.2, and I saw global tibia develop onto a great game, until I really got demotivated for many reasons, but one of the great developments I saw and motivated me to go for premium account, was those quests like you're proposing, long, and complex quests, I used to enjoy just for the quest, the history itself, without going actually for the reward.
About your idea, I'd really enjoy to see a great storyline going on and here are some thoughts:
Story and mechanics.
I havent made the new quests yet, but we have ZERO quests that involves complex puzzles.
Like the switch idea you gave, but all quests (and of course this is important) are based on going on, kill monsters, get the reward, but what about logical puzzles? Not random ones like "find the right swich among many" but math puzzles, tricky questions like "What gets wetter as it dries?" or maybe even a question that you had to pay attention on the hole story to know the answer (example: Sailor NPC: "I can take you to that island only as far as the beach, I'm very afraid of spiders, but be careful, a lot of mysteries surround it" and a further npc asks you something like "I have this X item but I need something from you in exchange, that Sailor NPC used to live in here, he destroyed all my wheat farm and blamed on the Dwarfs but I know it was him, if you know something he's afraid that I could use as revenge, I will give you the X item" But there are MANY other examples of puzzle things that could be added with the boss/monster killing main idea. Those are the kind of things I miss on all servers, you go on, get lvls, pvp, a few quests to improve your set and get bored then move to another server.
Another possible option as you mentioned something about "yalahar" is the same thing that tibia did, lik you must choose ONE side only to go on, but I do understand that it might not be that suitable since you have to make 2 storylines and we dont have that much players active lately.
Interaction with what already exists
Another idea on the quest, we have a lot of unused places that could be great as part of this main huge island, like the area before the insect quest have some potential, crystal base spawns and other cities on the TP area too. But not only areas, npcs, places, quests well you know, we could go as far as we want to.
Map
Just personal opinion without any logic "reason" but I think the 3 islands with underground or upperground connections would be awesome.
Rewards
I personally would not need a item, buff, upgrade or mount BUT I dont see the point of making such huge project if players dont go for it, and all players will only do it if they get worthable rewards. What I can sugest its a new lv up area inside the island, and the only way to use it is doing the quest. A good place for players 1200+
Super Rich Pieces
New set piece as reward like "super rich set" that can be comboed with ultra pieces, but with different proprieties and as ultras "only 1 piece equiped per character" so maybe like a druid will have "ultra boots equiped" but he done the quest, and the "super rich boots" gives 5% extra magic attack but -3% on dmg protection" so he'll have to choose between get another "super piece" (ex: super rich legs: +18% all protection but -3% on general dmg) so he can keep the boots slot with the ultra part, or get the super boots and try to trade his ultra with other players for a legs/helmet/armor.
That would give more variety to the gear EQs so the pvp wont go only for what spell/rune to use, but also whats the best EQ for my pvp style (agressive/passively).
Also I already said this few months ago, but I'll say again, if we had a "quest completation status" on our character profile at website would be AWESOME. Also maybe a new area/exclusive mount only for who have 100% quests completed on server? so even if we get new updates that gets new quests, players that wanted that new area/mounts would have to go for the new quests, and you could check on players profile the ones who done those quests.
I might edit this later if I have more thoughts on it, but for the moment, thats all.