Indeed, the beliefs about the Final Battle as I read them in Silm (dunno about other places they may be in) are part of the Elvish folklore and therefore not necessarily absolute truths. It's what the Elves think will happen.
Anyway, I found a great topic in the topic graveyard, it answers many questions posed on this thread (but also poses new ones).
Here it is:
Ealar and Incarnation. Anybody wants to comment?