The discontinuity is good, although the major close ties between the movies mean that I hope we never see another movie where the Citadel plays a major role. For as much discontinuity as there was, there was also so much close connection that I don't want more material to flesh it out, especially if it starts getting out of George Miller's hands because I don't trust other writers not to make things more literally and cinematic universe style.
For the folk tale aspect, the ending of Furisoa heavily leans into it with a sort of chose your own adventure ending, and the "true" ending being so absolutely insane that it has to be a folk tale.
I do wish the beginning of Furisoa had played up unreliability of the details regarding the green place, only because what we saw on screen was a bit preposterous if taken totally literally, and would have gone down easier with some vasoline on the storytelling lens.