[See part 1 here]
How do we make a backstory system that creates more Blood-back Jack vs. Fives McGee dynamics? More histories that are usable?
Well, Jack and Fives aren't technically backstory, they're relationship occurred in-game.
But that's still good character development, and that's really what backstory is all about, right? Establishing a character that you can then develop.
But rather than develop your character's in the vacuum of your mind, why not use the details of the game as a jumping-off point for in-game improvisation?
Whether GMs should prepare or improvise is a long-running debate, and I think the answer has always been "do both, and go with whichever is most appropriate in the moment." But I don't think I've ever seen an RPG blog post about player improvisation.
Picture the scene: a group of adventurers is visiting the human king of Somewhere after they helped to defend the local farms from a gnoll raid. The king (GM) is preparing to ask the heroes to complete another quest, and guarantees them a handsome reward if they do. Then one of the adventurers (players), a half-elf, steps forward and pronounces himself the bastard son of the king. "I will go on this quest for you, father!" the player roleplays, "But as my reward, I want to be acknowledged as your son."
The GM and the other players gasp. Woh! That's not in the script! And didn't I say that these "heir to some throne" backstories are rubbish? I did, because those backstories are usually built outside of the GM's world. They require some other kingdom to be built into the world. Whatever race that player chooses defines the kingdom they can be heir to. These backstories are the network agents to the GM's TV show. "I don't care what the dynamics of your beautiful story and world are, I want to be a prince."
That kills the GM's creative freedom, where as the big throne room reveal builds on it. It limits what the character can do (if the player was playing a dwarf, sorry son, but you aren't the heir to the human king), but it limits them only to what fits with the GM's world.
Also, it allows the players and GM to be honestly surprised by other player's characters.
This does throw some wildcards into your sessions. Ideally, not every session. If each player claims to be the heir to some throne or merchant fortune, well, they aren't being creative enough. That's the long and short of it.
I'll let you consider the numerous ups and downs of this. It's how I'd prefer to run games. Let me leave you with one development of this kind of in-game backstory improvisation system: mind-control rules.
The party wizard gets in deep with some devil stuff, and has to roll against being dominated by a pit fiend from another plane. Rather than having the player roll against the mind-control publicly, have him/her do it alone. No one else sees, neither the players nor the GM. The player reads the mind-control's effects, and then rolls and figures out how to play their character from there: just as they were, or as though they are now part of the devil's greater plots. No one else knows either way.
Won't it be a surprise when the wizard throws his allies under the hellish bus at the key moment? And won't it be more awesome when the other players survive the stab in the back, or die valiantly trying?
The GM and the players need to be the storytellers in the game. That's when you get the best stories, and in my opinion, have the most fun.