So I've been slowly reading this thread when I have the time over the past few days. I think I'm reading a few bits of the story differently than some (maybe all) of you.
First, I want to say that I think this is the best short story Jim's written so far, if for no other reason than I don't think any other story upended so much of the existing plot in such a small space. Maybe Thomas's bit about the Oblivion War, but even that doesn't alter my view of Thomas as much as this messes with my view of Morgan.
One very important part where I think my reading is different from many of you:
Malcolm died while I was on mission elsewhere. I arrived less than ten hours after the child went into the foster care system, and someone made him vanish. Magically, physically, bureaucratically. There was no trace of him, and I searched for years.
That bastard Justin DuMorne got to him before I could.
From then on, we could not be sure that the child was not molded to be a creature of Nemesis.
I read this as indicated the order of events were as follows:
1. Morgan goes away on some kind of job. We don't know what it was, but it's not really important (though maybe Justin arranged for the Big Bad Warden to be elsewhere).
2. Malcolm is murdered (not even really up for debate at this point, in my opinion; too many clues otherwise).
3. Someone absconded with Harry. When he says "someone made him vanish. Magically, physically, bureaucratically," I take it that there was no trace of which orphanage Harry went to. He was shipped off somewhere, and left there for years.
4. Justin adopts him. Morgan's line "That bastard Justin DuMorne got to him before I could" implies, to me, that Morgan thought Justin found him, not necessarily that Justin hid him in the first place. My reading is that Morgan is only commenting on Justin's adoption of Harry, not on Harry's original disappearance.
This final line: "From then on, we could not be sure that the child was not molded to be a creature of Nemesis." To me, this only means that Morgan is speaking with hindsight. I don't believe that anyone knew that Justin had adopted Harry OR Elaine, let alone both. I don't think Justin was even really on their radar very much at this point, unless it was as a fugitive.
So I see two possibilities:
1. The White Council and Morgan thought that Justin was just a retired warden chilling out in a mansion somewhere. No real need to keep tabs on him too closely.
2. The White Council and/or Morgan knew that Justin was a bad guy mixed up with Nemesis in some way, and Justin was therefore living in Hiding.
I tend to think it's the second possibility. It would make sense, to me, that Justin caught wind that the White Council had tracked him down, and were closing in on him. I've thought for several years that Justin's indoctrination of Harry and Elaine would've been way more effective without resorting to magic, and that it doesn't really make sense to brute force your way into making a pair of teenagers thralls. Cults do it just fine without magic, and then you've got the benefit of fanaticism. So I think that he found out that the WC was coming for him, and resorted to the brute force method because he'd have to go on the run.