Tolkein's elves represented, in the LOTR, the passing of legend and magic into obscurity necessary to bring about a world where humans could exist and determine their own fate. On a fundamental level, they are in the backdrop, and the more you find out about them (The Silmarillon, etc.), the more obscure and less detailed the descriptions become. Think about it: If you were going to represent the fantastic, the unknown, the magical, etc. as being a fundamental part of the creation and history of your world, then you must remain at a certain distance, lest you make the magic mundane. Tolkein's elves are the perfect means to do this, allowing him to link to, or provide glimpses of, the fantastic. They provide sufficient lore for the fantastic backdrop, but do so in a way that distances the reader and obscures the mundane machinations that we humans are subject to. Similarly, in LOTR, the Numenorean race is all but died out, the balrogs, dragons, spawn of Ungoliant, etc. are all on the decline, and humanity is pitted in a last ditch effort against the forces of decay and evil...if the elves played a pivotal role in this particular conflict, then the reader loses identification with the heroes and doesn't get the sense that as much is at stake (as in, "yeah, there's all these happy elves everywhere, so none of this magical world is really in jeopardy).
So yeah, elves are ***holes, but necessarily so.