Board Thread:Lore Discussion/@comment-1600847-20130821212751/@comment-25428397-20160404165815

As Sheogorath was originally Jyggalag, the end of every Era, until the events of The Shivering Isles, saw a Greymarch. The Hero of Kvatch ended the Greymarch prematurely, breaking the cycle, and returning Jyggalag to his old self. With the creation of Sheogorath, the Daedra created a new balance of power. Sheogorath becoming Jyggalag upset the balance and a now Madgod was needed. Logically, as (arguably) the most powerful entity in the area, the Hero would become the new Madgod. Jyggalag, severely weakened, would "die" to reform in the Waters of Oblivion. After a while, Jyggalag would reform, and return to his plane of Oblivion. As for why he didn't appear in Skyrim, he would have needed time to reform his body (like Mehrunes Dagon). All of this is highly Sheoretical, and based on comments on this thread as well as other Wikia articles. Having never completed the Shivering Isles expansion, I apologize for any inaccuracies.