One of the things I really like about the Storyteller system is the way a character's backgrounds integrate them into the setting. It doesn't matter what the background is, it serves a mechanical advantage and it can be used as a narrative hook for ongoing story.
One of the things I don't like about the backgrounds in the Storyteller system is the way there is no real consistency in the way they manipulate the mechanisms of play. Some backgrounds reduce difficulties, other backgrounds provide additional dice, some reduce experience costs over the course of play, and then there are those which provide more powerful abilities to completely circumvent certain types of situation.
To streamline and simplify Mage, I think backgrounds are one of the key elements to play with. Perhaps by developing of single background system with a consistent mechanism, but where each background is limited in it's sphere of influence, and each use of a background is a tug on a string which is capable of tugging back on the character.
Here's one of the places where story is generated for me. It's all about character choices and sacrifices.
Do you call on your allies, contacts, or retainers now, only to know that they will call on a return favour at a later date, or maybe have them permanently lost or killed?
Do you use your hideout or sanctum, only to potentially expose it's location to your enemies, or possibly destroy it with your metaphysickal experimentation?
Do you draw on the power of your avatar or totem, knowing they might take control of your sanity or soul as a price?
Every background can help in a different range of actions, and every background has it's own potential price; but the specific way the background affects the mechanisms of play is consistent.
Now it's just a case of working out the specific core mechanism that the background traits will manipulate, and how they will manipulate it.