Ultimately, the Ashbringer shatters Frostmourne and the full rage of the spirits within is unleashed, as Terenas directs the awesome power of countless slain paladins and priests (it is poetic as he is still their king) onto resurrecting the invaders. Pillars of light shine from their bodies, and they rise once more. At this point, the Lich King is already incapacitated as can be seen at the end of the fight, and the last of his unholy protections are cast off as the Ashen Verdict and the champions hurl their magics at him.
And then the cinematic happens.
As for Xe'ra, it was just speculation on my part, and I won't say anything about that unless we get some clue or confirmation.
Eventually, the powerful paladins and priests breach into the souls within Frostmourne, and the spirit of Terenas, Uther and others come out. At that point the Lich King has enough and kills every single invader... except for Tirion, locked within ice. The presence of the vengeful spirits of Frostmourne aid Tirion in calling out for a last miracle from the Light (imagine like he makes an oath in where he promises to vanquish evil if the Light can grant him a final great blessing) and he breaks free from his prison, engaging the Lich King. They spar a few times, and at each each blow Arthas becomes weaker as he falls down and goes into the defensive (imagine when Luke is beating Darth Vader in Episode VI).
Remember that I'm not doing stuff way too detailed, although I do like to 'explain' things.
At that final battle, the army of the Ashen Verdict and its allies (the champions of the Argent Tournament, which is to say, the players) will battle the Lich King at the very top of the Icecrown Citadel at the foot of the Frozen Throne.
At first, yes, Tirion will be frozen in place, and battle will ensue. At one point the Lich King destroys the very top of the Icecrown Citadel, leaving only the top platform of the Spire itself. At some point, his val'kyr will also be engage the invaders, sometimes dragging them off from the platform.
As you can see, it's a recreation of the encounter in WoW. Or as I like to think: WoW is a recreation in the form of a game of a real event (in another world, of course).
I'm rather curious as to how you're going to depict the battle of Icecrown. I think Tirion and Arthas should have squared off in single combat at some point; you hinted Xe'ra would be there. How would Xe'ra explain that and why would she intervene?