Hrm...I was just reading some of the theories about the Smiths of Muirthemne and the Tain.
What would happen if someone were to manufacture another tain. Say if the dwarves made another one, and someone managed to sneak this new tain into the old one. Then, if you entered the old tain, then entered the new one, you'd be in a tain inside a tain.
Anyway, you should see where I'm going with this, if not, I'm more insane than I initially thought. What if at some infitately high level, some dwarf made a few dozen tains, and went inside each one and opened the new one. This could explain why there's an 'end' to the world, that's just the boundary of the Tain which the Myth world is located in.
Also, the Fetch may have been pulled into this world from a higher level. To do this, Balor would have to have extraordinary powers, perhaps he and Alric are both from another level of the Tain and keep getting pulled down every time they die. (Ok, I'm assuming the Balor/Alric theory here).
Once they die, they jump right back into the tain, and they decide to go beat up their rival. However, what may have been only a few seconds for them, seems like 1000 years for the people of this world. This could also explain why the cycle is being broken. We know that the tain in out world, once broken, began to have normal time. If our parent tain were broken, our timescale would seem to change, what's only a few seconds for them could be 1100 years, or even 2000 years.