I agree that the 'kids' probably grew up to believe the great nations caused all their suffering. The way Konan refered to Jiraiya as an 'outsider' kinda proves that. Nagato's appearance looks like muscle atrophy, so I'm guessing the incident that started the rumor of the kids dying was an important fight that Nagato loses but barely escapes. As for "God Realm", I think Yahiko and Nagato grow up and disagree on what to do about their country. I wouldn't be surprised if Nagato's the one who killed Yahiko. The way Nagato refered to him before his fight with Jiraiya makes it seem like the were no longer close when Yahiko died. Yahiko probably didn't want to take revenge on the great nations while Nagato did. I liked how Nagato questions Naruto's sense of justice and reminds him that some evil things are done with noble intentions.