From a storytelling/writing point of view, I think it's more than clear that the Emperor was always within the prism, even back in early access. Some people were so certain that Daisy was the tadpole and got stuck on connecting that to the Down by the River song.
But the whole point of it was to subvert the obvious. To provide a "twist" if you will. You expect the dream persona to be a product of the tadpole. Of course you do. It's designed that way. Then twist! It's not! That was the point. And if you're clever enough to see the clues then you can predict it.
So the first twist is that the dream persona is not the tadpole. The second twist is that the entity responsible for protecting you is a mind flayer. The third twist is that the mind flayer is Balduran.
The game is constantly trying to surprise you and keep you on your toes.
*
Unfortunately, there's good reason to not like what they did with the Emperor. They tried something, and I applaud that. But it didn't entirely work. A lot of people simply didn't like the Emperor as a character, and that's a big deal. I don't just mean they didn't like him. They didn't even love to hate him.
