I have not done this for a whole game, but I have done it very small scale when creating the history/background between PCs or the formation of a group, ect.
I think it would be an interesting experiment to try to decouple that from the players' personal PCs to create history/legends.
However I think that how well that would work would depend on the players and their interest in taking on a role other than their current PC and being willing to not tie it back totally to their PC (as you mention, hiding a stockpile of magic weapons, ect). It would be a neat way to give players investment in the background of a world other than JUST what their PC can do in it now.
You could always give it a shot, see how it works, if it becomes problematic you can just amend. I think it is worth a try.