Originally, in folk belief, elves where dangerous and mysterious beings, whose motifs where unfathomable to man and like forces of nature beyond the categories of good or evil: if you put your hand in the fire it will burn you, without any evil intent on the fire's part; if you dealt with elves they were just as likely to help as to hurt you as the wind or the rain, and equally free of morality. Elves, in folklore, are completely alien to humans, and therefore both frightening and fascinating.
In twentieth century fantasy fiction, the elves have been styled as a variant of Native Amerucans, as woodland rangers, as angels, the dead, or simply as a different "race" of quasi-humans. In most fantasy fiction they are just lije humans except for their pointed ears. This makes them both boring and interchangeable. Consequently, in fantasy fiction based computer games, the player can choose to play a human, an elf, a dwarf, or any other "race", and beyond some specific abilities it makes no difference at all. This is illustrated in the mixed groups of heroes that normally go on quests much like groups of mixed ethnicities have to get along and work together in real life (without one ethnicity being evil and the other good, but all human and all capable of both good and evil behavior).
In fantasy fiction today, elves -- or unicorns or extraterrestrials -- are nothing more than weird looking foreigners. An elf protagonist is much like a gay protagonist: a bit of an outsider, but a normal human being nonetheless. Like LGBT protagonists elf protagonists are not as frequent as straight human protagonists, and they can be a turn off for straight human readers (because it destroys the last remnant of the romance of the folk tale alienness and makes the elves completely banal and unexciting), but they are by no means rare and a significant number of readers will have no trouble identifying with them.
Personally I dislike this portrayal of elves, but I don't think my qualms are very representative. The "other" is maybe even one typical protagonist today, from superheroes to bad guys and teen wolf.