yeah the nichiya this was weird, but i don't think its made Baccus look that weak since Nichiya was suppose to be one of the strongest mages in Fairy Tail, i mean he was chosen for the mission against Ocachis Seis (wrong spelling I know) and that team was suppose to be made up of the some of the strongest Mages in the land, and remember Baccus was beaten by Elfman which to me means that Baccus doesn't live up to his reputation.
and it might just be me but I didn't quite understand Igneel. Was he talking to the actual dragons of Rogue and Sting or was he just talking to them in a past tense way.
and its atleast obvious to me that the Dragon King Igneel was talking about is meant for the Slayers, to see which one is the strongest of all of them *Correction: The Grand Magic Games were originally called The Dragon King Festival, so unless there is a double meaning I doubt that there is any significance outside of seeing who raised the strongest Dragon Slayer