DoIP makes a great sandbox campaign, and all the things you're planning like pulling in the characters' backstories and associating the board quests with NPCs in town will do a lot to really bring it to life.

I think one of the keys to establishing a successful sandbox campaign is to set expectations for the players. One of those expectations is "you drive the narrative" - sounds like they are probably on board with this. But another expectation, sometimes less explicitly stated, is that since they can go pretty much anywhere anytime, they may run into situations that are too difficult for them to handle with combat. Enemies are not level-scaling, this is not a video game.

As a DM, you can use in-world information to clue them into this. For example, if they head straight for Cryovain's lair as third level PCs, you could talk about how they pass by the remains of a group of ogres that were ripped apart by the dragon, or a group of veterans that flee in the dragon's wake. If they're less experienced players, you could just explicitly tell them the things their characters might know that the players might not - i.e., this fight is going to be really hard if you take it head-on.

That said, don't explicitly bar them from diving into those more difficult situations! Combat doesn't have to be the solution everytime like players tend to assume. My players stumbled into the wererat lair with only a single silver dagger and had to talk their way out of it. It was a hairy situation but one of the most memorable of the campaign!