Lugh Lavada

Where in the game does it say that he is a god?

Several keyword usages. I don't remember which ones, but they do call Lugh a "God" in several.

Also, we do know why Cichol is trying to destroy Erinn. In G3 it was revealed that Erinn is TNN. In G10 we find out that he wants to destroy TNN with the Brionac to start from scratch.

Mabinogi Keyword
Meven: ...Or perhaps about Lugh, the God of light, who brought peace back to this world after fighting off the Fomor...

There's probably more to where they call Lugh a God...

My memory is still hazy. I don't recall the actual reason of Erinn's demise, too.

The Forgotten Legend of Fiodh Forest:

“	Finally, the people could not handle their curiosity and began attributing the Knight as a God or an Imp.	„

Seems to indicate that his "God" status is just him being praised as one.