Larian shows the Divine as a flawed man, which isn't anything unexpected, because he started as a mortal, thus a person, who makes mistakes. We also find out, that the Seven Divines/gods were as flawed as Lucian. Did he made a wrong decision by leaving the baby Damian live? Maybe, but it was his decision to make. And perhaps it could work (well it worked until Ygerna came along), baby Damian might have become a mighty paladin, if things went well (I recommend the books that come with both Definitive Edition and Developer's Cut). Unfortunately there still was Black Ring and they came close to Damian. Killing Ygerna wasn't a bad thing, bad was allowing Damian to see it. What did they expect from him? That he would totally understand the murder of his loved one? They should execute her somewhere more private.
I'm not sure about the Elves though, is there any evidence, that they planned an uprising, or that Lucian had a reason to believe they did? I always thought they were just collateral damage, the Black Ring was close to them, so nuking that area with Deathfog would hit the Black Ring and well "sacrifice" some Elves in the process. A necessary evil so to speak.
