About the sudden Heroic sadness, my personal headcanon is that the Hero either:
A) Doesn't HAVE one to begin with
B) Doesn't remember anything prior to the start of the game.
Remember, Dragonfable directly(?) starts after(?) the events of the MechQuest. Therefore, despite creating the Dragonfable universe, the universe DF is set in...possibly didn't technically exist prior to the Hero being Bored.
The Hero pressing the Reset Button may have had other unintended consequences as well for the Hero specifically, being the one to press it - sort of like paying a hefty conceptual price for such an act, like amnesia, or worse, being the only one 'separate' from the rest of the universe. How else is it that the Hero didn't know anyone when he was sitting around Oaklore, which is a stone's throw from Falconreach? Or that the Manaphages had no idea what the Hero WAS when they attempted a scan on them? The parents the Hero may or may not have now were back on the Hero's homeworld in Mechquest, who knows where they would be now?