RTF is a global modification that replaces all towns in the game.

Well, it's roughly what I wrote, plus this magical Shantiri blade (instead of the undead, there will be enraged Shantiri rising from the depths of the sea).

No, here the spirit will be an outcast; he was responsible for some kind of cataclysm (you can find a mention of a cataclysm that occurred 2000 years before the era of the Seventh Dragon in Dark Messiah). The spirit is imprisoned in the sword to prevent him from doing even worse things.
In Heroes 5, Leto was a pirate, and his ships were destroyed by orcs in the second mission of the Orcs Campaign, so the plot will start with Leto stopping on an island, in an ancient city of dark dwarf-pirates. There, he will take a job to explore ancient ruins, where he will find this sword, but he will be met by an army of golems and elementals, and Leto will make a deal with the spirit: salvation in exchange for release from the blade.
Then, Leto will be teleported to the Wolf Duchy, where, among the ruins of a demon-worshipping temple, he will meet the resurrected Kaspar, and together they will go to Kartal.
Then there will be a coup - either Leto will seize power over the Chimera mages, or he will help the ruler's youngest son take the throne (but he must be insane, in the best traditions of the Chimera mages). This is how they will gain power.
The spirit in the sword will no longer be able to help them and will be freed. He can look like anything - a lich, a vampire, a ghost bound to armor, an elf, or he can be placed in a living creature (some Chimera general)... He will call himself the Ice King and will go to seek his destiny in the east.
The plot diverges.
1) Leto repels Tarland.
2) The Ice King meets Sareth and Zana in Stonehelm.
The first branch is short, and the second will have many events