a) Deserts generally aren't the most hospitable places to live. They probably didn't think it was really worth the bother of colonising.
Obviously, something has now caused them to change their minds. It could be that someone has discovered a valuable resource hidden in the desert (i.e. gold) or something that would be of interest to the mages (strange magical creatures, ruins of ancient civilisations, etc.). Maybe the Empire just really can't stand the fact that there's still a piece of land which isn't theirs. There's no shortage of reasons you could use, so it's basically a matter of choice.
As for where to put your desert, well I guess there's still plenty of space left in Valorim (the Empire perhaps aren't quite as all-powerful as they like people to think they are). You could probably also get away with sticking a desert in the middle of Vahntanas (sp?) since the middle of the continent is pretty much a wilderness and only the coasts are inhabited by the Empire. (Somebody please correct me if I'm wrong.) Failing that, you could always come up with a random desert island.
I like the idea of the desert setting because there's a lot of interesting features you could fit into it, such as the water flask idea that Kelandon came up with. If you're looking for any further ideas then here's a few: mirages, sandstorms, hidden tombs, giant sandworms (think Shai' Halud (sp?) from Dune) and scorpions and other nasty beasties, tribes of wandering nomads, etc.
Hopefully my inane ramblings might be of some help to you.