Mike discovered the old writer residing in backward town producing made-up stories (10)

'backward town producing made-up stories' is the definition.
I can't judge whether this definition defines the answer.

'mike discovered the old writer residing in' is the wordplay.
'mike' becomes 'mic' (I've seen this in other clues).
'discovered the old' becomes 'ytho' (I can't justify this - if you can you should believe this answer much more).
'writer' becomes 'poe' (Edgar Allan Poe).
'residing in' means one lot of letters goes inside another.
'ytho'+'poe'='ythopoe'
'mic' going around 'ythopoe' is 'MYTHOPOEIC'.

Can you help me to learn more?