I've seen them a couple of times, when I was still playing DA. The difficulty settings doesn't seem to play a role in this, only how you play. Just like all the other Mega Events. However, I still haven't figured out the exact trigger.

I have seen the Dread Lords about 7 or 8 times between DA and TA, and they've never appeared before at least five years into the game. Other than that, there's no obvious condition that seems to be required.

The one other thing I've been able to determine is that any of the events (mega or normal) that creates a new civilization is much more likely when there aren't many minor races. There doesn't seem to be any kind of actual limit on how many civilizations can exist at one time - I've had games with 9 "minor" races - but it seems more common for new ones to appear the fewer minors there are.

Bumping this because I think I've solved part of the mystery. After doing a lot of testing, I still can't figure out what - if any - trigger there is for the Dread Lords showing up, but I have determined that (at least in TOA; it might have worked differently in DA) there actually is a cut-off point for their appearances. It's not related to tech or exploration as such, but seems to be when the last habitable planet is colonized: unlike Vegans and other pop-up minor races, who seem to be able to appear pretty much anywhere, the Dread Lords need to spawn on a previously-habitable planet (whether it's extreme or not doesn't seem to matter). So if all planets are colonized rapidly on Suicidal, then it would probably be unlikely for them to show up.

I'll have to test this on DA, though, because I know the event was changed between the expansions.

Could you define what you mean by "habitable"?

Do you mean larger than PQ1 and also not toxic/heavyG/rad/barren/whatever?

I ask because I often notice late in games a stray PQ1 planet or three deep in AI space.

I may try an experiment: isolate a normal environment planet with an eight ship blockade and see if the Dread Lords eventually show up.

Well, my personal theory is that they will not appear before a certain date and will not appear if a certain tech threshold has been crossed (or perhaps any race exceeds a certain military score).

Thus, they will rarely appear in Suicidal games.  

Another possibility is that they do not appear in ANY DA games when the setting is suicidal.

Has anyone ever had them appear in a suicidal DA game?

They won't show up in vanilla GCII. It's a mega event, and those weren't added until DA.

I don't play Suicidal, so I can't say whether or not they can appear on it specifically, but I see them about once every ten games in DA and TOA on Tough.

You can't talk to the DL, making it impossible to ally with them (or make peace for that matter). They also start out with all techs already researched. Their main problem at the start is that it takes a very long time to build ships. Once they have built enough Industrial Sectors, this isn't the case anymore. Until then, however, they are easy pickings.