Re: Writing Setting Material
The latter could work, depending on the setting. But you might want to add in comments by an "editor" from the opposition, so that it's more clear to the reader that the original account must be taken with a grain of salt. This form would also be slightly more work for other GMs who want to use the material, but as far as I'm concerned, this is a lot of writing and if it isn't fun for you you won't finish it.
The former approach is a lot more conventional and, done right, can be very successful. I am reminded of the Traveller Starship Operations Manual, which was a typically dry account that had a lot of quotes mixed in from an old crusty starship captain for color. "Why do we dim the lights right before a jump? Well, it used to be that we needed every scrap of power for the jump drive. Now it's just a silly superstition. But I always dim the lights."