This is more like the Original Dragon of Unova. Arceus is specifically said to have created Dialga, Palkia and Giratina, not that it became them. The Sinjoh Ruins event features Arceus creating one of them.
What is there to suggest that Arceus isn't what they say it is? No, I don't believe the Pokedex entries are 100% fact, but I don't think they are completely fictional either. More than likely, it is a combination of both, which is where the mystery comes in.
Dialga can control time, as its legend states, though it may not be time itself.
Palkia can warp space, though it doesn't regulate by simply existing.
Giratina resides in the Distortion World, which is "the world on the other side of ours" that was described. Though the Distortion World was not destroyed when Giratina was captured or defeated.
The Sinnoh Dragons' legends (for the most part) are true. They each possess the powers they were said to possess, as far as control of time, space and such. But why is it nothing about Arceus should be considered valid? Arceus has been shown to create these dragons. Not to mention everything about Arceus suggests it was created by Game Freak specifically to play the role of the "first Pokemon" and to basically be god-like, without actually being a god.