That's right, the mortal myths are immortalised by the repetition of their tale. Since they, like the gods, are the creation of human belief and perception, they'd probably appear as they're most widely imagined to be. (Hence we've got one or two folklore characters who in reality died in their old age - but in the game appear youthful, as they're more likely to be depicted.)

In terms of where they first manifest, I guess they're similar to the gods in that they're anchored by belief. They're brought (back) to life by their stories, so they'd manifest wherever their stories originated.

I think it's definitely plausible for a god to forget. Especially in the case of the old gods - between their ever-dwindling power and any number of traumas they might have undergone, it's quite likely that some have lost their grip on reality, or even on their own identity.

Hope that helps! Feel free to give me a poke if you've got any more questions.