It's as Vicky says: she may be quite feminine in her behavior, but the entire word thinks Stefany is a man. So she's hiding in plain sight because everyone that's looking for her is looking for a "him" instead. So that means maybe Arc will be the target?

Mostly the reason why Caius and his men are going to Flarg instead of Frelia...

So, to clarify a bit: the plan is staying behind a bit. Caius won't be in Flarg for up to four days, so no one should meet him until the fourth day or if they're traveling from Flarg to Tai'zel.

As for the Chancellor: that is to prevent using Prince Lyon directly. Anyone may use the Chancellor as necessary (he's meant to be an NPC), and drive him to the path they like. Maybe he's keen of what Prince Lyon has turned, and has decided to protect the surviving prince, or maybe he's in cahoots with the Prince and perhaps something else.

The plan is simple: Caius isn't exactly looking for Prince Stephan/Princess Stefany, but a supposed criminal. That's to prevent Jehanna from suddenly stopping Grado soldiers in their tracks. The troops sent are loyal to Caius, but also loyal to Grado; without Caius' direct command, they can work as they want. The message is sent on a differing day, so the contents of the message are to the liberty of Magi and the rest: perhaps Caius' forces are sent to invade Jehanna from the sea while another Grado force decides to invade upon the land, or perhaps the original mission is intended but people hide behind and invade Jehanna anyways. The idea is to provide an excuse for Grado presence in foreign territories, thus paving way to the eventual attack (if following the game story, in any case).

About the spy: the gender, occupation and affiliation are left open in case Magi needs an NPC and Victoria agrees that there's a mole in the group. The mole can either remain loyal and be a real double agent, or perhaps Defeat Means Friendship and the spy betrays Caius. As well, the spy may confuse Arc with "Stephan" and follow the group, thus forcing a confrontation between Arc, whichever forces may be available to him (including Myra), and Caius' forces. Finally, the spy could be one of the fellow players, which can decide what it wants to do but might be willing to play the hook as well.

Hope this doesn't sound too complex, but these are ideas I'm just shooting out, in case anyone wants to use them. Of course, I will accept that you have other ideas for your characters and their actions, so don't feel forced to follow any of my ideas at all.