I think the elves probably did create fiction storys. It just never talks about them in the books. Just like you never hear men making up fictional stories. It doesn't mean they never did take the time to write a book that wasn't about history or Arda or whatever was going on in the present time, but that those are the most important type of stories that The Silmarillion is made out of and others stories.
You know what I mean. The Lord of The Rings and The Hobbit were (In Tolkien mythology) stories recorded by the hobbits and reworked by men in Gondor. And different elves record history that becomes The Lay of Beleriand and Narn I Hin Hurin and so on. These were the important stories, so they were the ones told. I dont think Elves were limited in any way.
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Son of Isildur.
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