The mythology of creatures in Heroes (Goblins and Co.).

Well, it doesn't really matter whether you draw from existing mythology or create your own, but if you do create your own, please make sure that all the creatures are logical and look good in terms of design. Heroes 5 lacks both.
And regarding the fact that no one has seen them: not seeing something doesn't mean it doesn't exist, but there are paintings, books, and other evidence of what these mythological creatures look like.

In my opinion, they look quite normal. At least, some creatures may not fit into the game as well as I would like, but none of them make a repulsive impression.
Yes, there are books and pictures. But you can ask: why do you assume that everything in these books is accurate? Maybe it's accurate in another source? And since this is an area of science without proof, you can only rely on the fact of which beliefs appeared earlier, and even that is not a solid argument. Although I myself love mythology, especially Greek mythology, and I also think that the creatures are not made correctly in relation to mythology, I don't think it's worth criticizing the developers for this - they created their own mythology, which I think is very commendable.