In fact, one of my agents was a character of one of these fanfic. That was some sort of cracky crossover (but after some time it became more serious) between the author's works and several other works, with a lot of OCs too. We wrote it as a roundrobin on the author's forum, and the author herself encouraged us to keep writing.

(It was an Italian fantasy book series, "Nina, the child of the Sixth Moon". It has been published in many countries, but as far as I know it had success only here in Italy)

About the canonicalness (dos this term exist?) of the fanfiction, I doubt it as there were other similar stories there, most of which incompatible with ours. But in a way they were recognized by the author.

If I catch a badfic in that continuum (quite hard, as there isn't much fanfic about it) maybe I can play it out and make Nina recognize Agent!Sergio Turbo... and so the agent has another problem to deal with.

I think that even if the author encourages fanfic, and there is no official canon, the things the author sets down and things that go along with/work off it/etc. are the things that are the standard of what 'canon' would be there.

Meaning: if the author encourages fanfiction of his/her work, that written material... should be a fanfic of THAT WORK. Say writer A sets down Alice and Bob and says 'Go crazy, fanfic all you want," a story that renames Alice 'Charlotte' and contains a Bob with absolutely no resemblance to his canon self... really isn't about the author's work anymore. I'd call that sort of work badfic.

Badfic nearly always does the same thing in every continua: it gums up searching for good fic and it's kind of dumb. I wouldn't think this continua would be that special: just it defines 'canon' a bit differently.

I like to write stories - both fanfictional and otherwise - that play extremely hard and loose with the facts. Although it's yet to reach the level of incorporating elements from other fiction, the idea is rather tantalizing to me. The problem being of course that someone who can quickly produce terrible badfic is in danger of creating a major headache - which might itself be a fascinating mindscrew if viewed through the lens of abstract horror! (Or just a headache.)

For some examples, the Lovecraft Mythos eventually spun off to include many other writers of horror from all across the world - of varying quality, perhaps, but part of the reason it is so broadly known today. Similarly, the Wold Newton concept sought to connect through metafiction various individuals of some fame. I dunno if either'll help with your train of thought, but either way - good luck on your writing, and have fun!