I like the gist of your plot-story idea. I'm wary of Dragonewts tied with Elemental powers because they'e not supposed to be, but its not a big deal. If someone were to be transformed into a Dragonewts, it would seem odd to me that they wouldn't be reborn from an egg.
In my second age game the Newtlings were victimised by a lot of other Cradle Valley dwellers. The Campaign for Newtling Dismemberment was particularly violent. Only a dark sorceror/criminal overlord was helpful to the Newtling cause which probably didn't help. The supposed reason for the bigotry was that the Newtlings had controlled some sort of shadow government over the valley.
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