In terms of lore, how is Phantasy Star Online 1 and 2 connected.

[LinkEP]

If PSO2 is connected to anything, then it's clearly the origin of everything, since we know the creation of the Profound Darkness was an event not that far in the past. Every other game in the series, Falz is some sealed ancient evil thing, the same about the PD origin, something in the very distant past.

I second this theory.

There's unlikely any direct connection but due to the similar design of the ships between both games I'm suspicious that it was Pioneer 3 that found Xion. (Pagini randomly name drops this after trading photon drops.)

I partially agree that Pioneer 3 could be the civilization that discovered Xion due to fleet architecture design similarities. However, Pioneer 3 might have went to Gurhal Star System, because PSU hinted that Guardians are the successor of Coralian civilization based on PSO1 apparel description, see the image:

Spoiler!