I find it interesting that the Dunlendings would be aware of the Elvish folk at all given that Elves are passing through the Shire all the time and nobody there seems to be aware of it. Perhaps the Dunlendings are more 'aware' than the hobbits (which would speak very much in their favour in contrast with the insular citizens of the Shire). I would argue that it's a more hopeful sign to see and then run away from than to be wilfully blind. But then again, I've never seen Elves myself, so what does that say about me...(?)
