I'm wondering how Giovanni made his Nidoking so strong. In that case, all his Pokemon would be that way. It's probably the tablets, which actually do boost a Pokemon's attack, depending on type though. Woo-hoo, canon!
I can't say much about the whole history thing. That's really up to you. I'm a bit worried about the whole "Psychic Pokemon all morph to talk to Ethan" thing. It's better to use a single character, partially because that is totally freaky. Not exactly in a bad way, but it's just really farfetched. It would be better to just introduce Mewtwo. Celebi would know, since Mewtwo could just tell it telepathically and Celebi would know its cave (Cerulean Cave? Maybe? Yes?!), and yeah. Mewtwo is smart too, at least that's how I thought of it. Now, that does screw up your whole going into Cerulean Cave ordeal. But honestly, Mewtwo already aware of the whole Rocket situation makes more sense. I mean come on, in a few parts of the anime, Mewtwo is shown running around a few cities and watching them, making sure they're safe. I'm sure it would notice something odd if Giovanni suddenly rose to power. Think about it. Its creator is running around destroying everything, and Mewtwo hates its creator. And the whole "proving yourself" thing is getting overused, especially since you use it again when you have Cynthia doing it too. There's absolutely nothing wrong with a Pokemon asking for help, even if it's Mewtwo. Also, meeting with Red looked pointless. I know he's really cool and a badass, but if he doesn't do anything important, keep him out. He's just a dude on a mountain, and probably hungry. Nothing really special about it. If you want other people to take notice, and they totally will, try using some other trainers who want to do good, or Gym Leaders, even the Elite Four and the Champion. Most fics present Gym Leaders/E4/Champions as pivotal figures in fighting crime, and that makes sense. They're role models and that's just what they do. Don't forget the local police too. They need some love, even though Giovanni would probably take them apart.
What happens with Celebi when they teleport from Silph Co.? I'm guessing that Celebi doesn't teleport with them. In that case, I think it really adds to the tone if Celebi dies. Being captured.. yeah not too much. But if it dies, it really gives the story a sense of hopelessness and tragedy. As for Ethan's dreaming, I think it would be best if only Cresselia/Darkrai appeared. They both represent dreams and nightmares, so it makes more sense if they just appear. The Lake Guardians would look too forced if they were present. Anyway, Cresselia gives good dreams, Darkrai gives nightmares, so I think they'd cancel each other out to give Ethan a regular old dream, if that makes sense.
Okay, onto Cynthia. It's best if Weavile and Garchomp are more evenly matched. Remember, Cynthia has trained for who knows how long, but she's a Champion. Ethan has been a trainer for maybe a year. A type advantage is nothing compared to battle aptitude. Look at the anime: Ash wins a lot even with type disadvantages, and loses with advantages. I think it would contribute more to the fic if Garchomp and Weavile are so evenly matched and just duke it out for a bit. You know, they're both pretty darn fast and hit hard, just Garchomp is more bulky and Weavile is more agile, so then eventually maybe Weavile comes out on top and doesn't deliver a final hit and instead, collapses next to its combatant. More suspense is in there, and a lot more emotion into the battle, which is what you really want to get across. It's like coming of age in full bloom at the scene.
And now with the Hall of Origin. Don't keep trying to force in those legendaries. Sure, Dialga and Palkia are important, but it's better if they just aren't there. It's too forced and they don't do anything, except really minor plot devices. Take 'em out. It's all Arceus's show now. And in the real game event, they don't appear either. And being picky here again, but why are you using a voice to tell Ethan that only one can proceed? Cynthia is a history junky and I'm pretty sure she'd be more than happy to tell him why she won't follow him into the hall. And what's with Arceus? I know that it's a God and all, but the description is really weird, given that it actually has a physical appearance. And the appearance is also static. Arceus isn't a doppelganger, just a sleepy creator. Keep it in context so you don't seriously freak out readers with your arms and flames and everything. It's fine if you want to make his resting place all special and crazy, but not Arceus itself. Arceus doesn't really have arms. Other than that, the plot idea is all right, except Arceus needs the tablets to fully utilize its powers, evident in the Arceus movie. It's a different story if the plates are already there though. Or you know, whatever you want to do. I'm mainly thinking in canon here, but it's fine if you don't want to use it, just don't stray too far off.
And the final battle. Game time, baby. It's all seriousness here. The final battle is the climax. It's everything you've worked on. This is the big moment. The actual battle? It surely wouldn't be a full battle. The Pokemon world is resting on Ethan's shoulders and the pressure is everywhere. It's emotional, dramatic, and destructive. It could work if they were on top of Silph Co., so Giovanni could fall and die. But Silph Co. is getting overused I suppose. Another thing that could work would be battling at the train station, and somehow either Ethan's or Giovanni's Pokemon sends the magnet train flying at Giovanni and kills him. These are just a few random ideas. Hopefully, they gave you something else to work with.
Ah, didn't take too long. Only about thirty minutes, the writing process anyway. The plot certainly thickens but it all means nothing if the prose or something is off. Remember, plot isn't all of writing. While it is a good idea to plan, too much planning may cause you not to write much at all. Well, that weird advice aside, I hope that my input gave you some new ideas and that you're more prepared to start your story!
Geez.... Replying on my iPod, so the spoilers are really acting up.
In general, I'm glad I posted this because you can help temper my ideas. I was worried about the amount of legendaries, and upon thinking it over, I don't know why I wrote that Celebi was caught.
I see your points on Cynthia and the Psychic type gathering, it does seem a bit odd... In my defense, I barely played Gen IV except for Heart Gold, so most of my knowledge of Cynthia is hurriedly Bulbapedia'd.
As a last note on the Ethan/Lyra name choice... It actually started off as a set of placeholder names, but as I wrote and imagined and experienced the story with and through them, I really got attached to them as characters in their own right, and I think after I start posting the story, you'll see that as well. This may be a bit weird, but on occasion, I will sort of get in character and answer for/through them to sort of flesh them out. If its weird... Meh, I don't care, it works.
Whew, that took about twenty minutes on my iPod.