I've always wondered what Stitches back story is. I mean, he's cute at first glance, but once I had him in my town and went in his house his appearance coupled with the Kiddie set and K.K. Lullaby just seemed...Eerie.
My theory for AC itself is that the mayor (or player character) is a child from a dysfunctional family, whose parents were recently divorced which has left the child scarred. Because of the psychological scarring caused by the bad divorce, the child has chosen to live inside a dream world where all his toys -- the villagers -- have come to life to comfort him. He wants to play his troubles away and creates a village and individual personalities for each of them. But toys get lost, so when they do, his mother replaces them with new toys. The dad moved out after the divorce, but still loves him and is one the unknown sender of the letter we received at the beginning of the game. But because he has to pay his bills, child support, and alimony, he has very little time to write to his child, which is why we receive more letters from the mother. The other three optional players represent the child's friends, who come to visit and play with him. They are allowed inside his world because they did not hurt him like his parents did. The no running rule is the child's subconscious mind, telling him that if he only calmed down enough to breathe and look at everything around, he'd see that things had already gotten better, even though his parents were no longer together.