[lord of dor-lomin]

Smaug is dead. Yes, that's true, but the Balrog, Saruman, and the Nazgul are dead too. It doesn't matter. This is a 3rd age list, and anybody alive at any time during the third age is eligible.

And also, it doesn't matter that Smaug didn't threaten all of ME. The Balrog didn't either, he just hung out in Moria. I don't think you can say he wasn't powerful just because he stayed home.

And on the same note, controlling more land doesn't make one more powerful. Why would Elrond need to control more land? All of his people live in Rivendell, so he has no incentive to control anything outside of the valley. But remember, he does control the river, and controlling a river is not a small thing.

And maybe Elrond didn't show as much interest in the ring because he wasn't as power hungry, or perhaps his will was stronger and character more noble, and so he was not so easily tempted.