Arawn is focused on the underworld and doesn't really care what happens in creation. He doesn't like necromancy, but not enough to do anything about it. The compact would allow him to empower priests to go fight undead, but he really can't be bothered. He is similarly apethedic towards the Sidar.
Saying that the Sidar worship Arawn is probably to much. Its better to say that they revere him (not that he cares).
The underworld itself is infinitly large and changes to reflect the emotional state of those within it (many would say the world works the same way but it takes more time). It is not controlled by the powerful wills of the gods as the vaults are so the dead spirits unconsciouly create their worlds within it. Some of these areas are shared by several spirits, some are alone.
The darker spirits are usually claimed by one of the evil gods and whisked off to hell, so you don't see anything to horrifying in the underworld. Though there can be pretty disturbing sites. Some places are pleasent (grass fields where children play), some can be dark (ruins of a house with the echoes of crying throughout), some are bizarre (a city that runs in reverse).
Arawn was intially the god of life and death. He created 2 archangels, twins, one to guard the gates that new life enters creation (Basium), and one to guard the entrace to the netherworld (Gyra). Gyra is more compassionate than her brother and she has acted a few times to protect the Sidar (including keeping Basium from wiping them out once), she also helped the enslaved elves escape from the Dungeon of Laroth.
Laroth... a powerful archmage during the Age of Magic, now dead and building his own kingdom in the underworld. One of the few with enough control over himself to use the underworlds reflective nature to create the environment he wants. He is building an army meant to challenge Arawn himself but the normal spirits of the realm are incapable of real action, they are trapped inside their dream worlds. So he needs heroes to die, powerful men with powerful wills to serve as his captains. So he created the Nether Blade and saw that it was delievered to Rathus. Arawn doesn't care if powerful men live or die, but Laroth wants them.
) and the Sidar.
