Hmm, this is an interesting story. Still, I wonder why people would want to hear about Nostrum, specifically. The story doesn't feel like a parable, fairy tale or myth. Those are usually trying to warn people about something or teach people lessons. Nostrum, apparently, just shows up somewhere at random times to search for stuff. So it's not warning people not to do certain things or stay away from certain areas to avoid Nostrum. It's not teaching a lesson either, other than don't be a dick.
I suppose the best description for the story of Nostrum would be a tragedy. Perhaps a legend-based tragedy. It works pretty well as one for those are looking for that sort of thing. Not sure why someone at a bar would be, though. The story had a simple structure, and the repetitive nature of it adds to that old story feel. Towards the end, that was when things got kicked up, and I felt for Pistos's struggles. That part was good at evoking emotions out of me.
Crack theory. The wife was in on it. The husband and son were both busy making weapons, so the wife was the one going out to town getting supplies and stuff. She would easily know the war was over, yet she said nothing. She wasn't kidnapped, she took the son away for a continued cut of the profits.
Consider why this is a story that would be requested, especially at a bar. I'm not sure it would be. Though the person asking might be an interesting character themselves.
I think there was a parable, actually, and it has similarities to the story of Job. There's no Satan figure in this one, but you start with a similar premise: Pistos is faithful and so he is blessed. Each day he shows his faith and is rewarded for it; he's built a reputation and lives as an example to others. Each time the general tests his faith, Pistos proves himself. Each time the son questions him, Pistos corrects him.
Even when the general tests him further, Pistos initially does not give in, but here is where the story turns from Job and becomes more of a warning. At last, his faith that he is known for is broken. He discards his faith and consumes the echrum, which were once the symbol of his blessings, and once he turns from faith he becomes a monster. Note that the first thing he does after gaining power isn't to rescue his wife and son, it's to exact vengeance. He didn't turn from his faith to save them, but to punish the one who tested him.
Now, you might say he had little choice in the matter, but many parables and legends are similarly unfair. The Bible is full of them, Job being a prime example, as is the story of Lot and his wife. There's room for improvement, and I think K3 actually has a better handle on that sort of thing, but it fits well as a parable or myth.
I'm late to the party, but I did just want to say a job well done. Will and Fin have more or less discussed the main points. I do enjoy the feel of some old tale that might be told to spook people. I imagine the story being told among the religious and the magic users in Aeravis.