Heheh, I agree with you on the Ethereals being somewhat ‘controlling’. Look at all the background story, and moreso, look at the vespid integration with the communion helm. Now regarding the imperial guard never procreating, a lot of background fluff surrounding human auxiliaries states that the human warriors fighting for the Tau on the fringes are generally all descendants by a generation or more of the survivors of the Damocles Gulf crusade… Now, as for a change in policy perhaps in third phase expansion worlds? Possibly. Third phase expansion sees Farsight decried (responsible for a the victories of the seccond phase expansion, and also the post-damocles crusade mop-up that integrated many humans into the empire) by Aun’Va.
Back to the ethereals again and the artwork, pre Tau Empire the tau mini’s were very humble, wise looking. Tau Empire tau minis are the other end of the scale, almost quite sinister. As for Farsight killing his Ethereals off? Arthas Moloch, the world that happened on, and the conflict mentioned points square at the Necron. That’s where he found the Dawn blade as well. The Dawn blade doesn’t seem like the necron kind of shin-dig though, possibly it’s a relic from the ‘other’ ancient race.
Either way, I’m aiming to model a renegade tau/human force, possibly a Farsight enclave even - I’ve yet to finalize the fluff for the army - that flies in the face of the Ethereals and High Imperial Administration. They’re in trouble either way if Tau or another Imperial crusade rolls in ;).