2) The concept of Elves is not universal in historical folklore / mythology or modern conceptions of them. It is completely fine to have elves (or any fantasy creature/race) in a gritty setting. It seems you are being rather unimaginative in your concept of elves and "gritty." A few examples:
2a) Elves could have, generally, removed themselves from the world and are extremely rare. Spoken of in hushed whispers and have become almost like the bogeyman to the general populace.
2b) Elves are defenders of nature and have serious issues with humans because of it (think Game of Thrones elves hear - heck didn't you say GoT was a "gritty" setting)
2c) Elves are feared but also coveted for their magic. Humans hunt them out of fear and to use as magical ingredients.
2d) Elves keep to themselves. Tolkien is really pretty darn gritty and this basically his approach. Though elves are pretty much universally good, they keep to themselves and are treated suspiciously by many people.
Here are the things you would have to fundamentally change about Elves in order to get them to work in any setting that would be considered "gritty".
The moment you say "Well, by all means play Marisoo the Elven Ranger Princess who sneaks better than the thief and fights better than the fighter thanks to her super human 20 Dexterity at level 1 and is old enough to know all the other PCs grandparents but still has the body and attitude of a 17-year old thot Instagram model and is instantly beloved by everyone in the world for being the physically and morally superior master race."
You've lost all "grittiness" to your world regardless of what mechanical rules you throw in there.
And, no, saying "She is the only one like her... unless someone else in the party wants to play one or she dies, then another will appear out of thin air. But, otherwise-- they'll only be super high level NPCs."
* They cannot all universally be hundreds of years old. If grisly death is a common occurrence and a looming threat at all times, NOTHING that isn't the biggest, brutalist, nastiest thing in the region is going to survive long. And even in those cases it is likely only going to survive by cutting itself off from the world and lurking in places no one goes and working through intermediaries. Everything else will almost certainly die before it is 35.
* They cannot be described either explicitly or implicitly as automatically more attractive than everyone else-- an entire people who down to the very last member look entirely like porn models unless they do something akin to eating people's souls to achieve and maintain this beauty doesn't belong anywhere in anything that intends to be considered "gritty"-- they should be just as broken, scarred, damaged and warped from the experiences of living in such a world as everyone else.
* They cannot as a culture automatically have access to all the best everything and have all of their wants and needs automatically fulfilled without a single one of them having to make any actual sacrifices. Unless they are employing slavery, raiding or other evil methods to reap the rewards of other's dirty work, they are going to have to be shoveling crap, working fields, burning bodies and bleaching their pure white woolen garments with piss the same as everyone else.
* They cannot be universally the moral arbiters of right and wrong and always right about absolutely everything (except for the dark skinned ones which are naturally always evil except when even they revert to being always good because they are too sexy to be allowed to be evil). If there is an entire race of people whose side is always "good" and one knows they are "good" purely by how aligned they are to those people's will and benefit-- sorry, any grittiness is lost. The moment there is a pure white in-world solution to problems and that pure white solution is handily indicated by the master race-- it stops having any nuance at all and no matter how dark you make the black parts, your pure white master race that just dominates everything removes that from the picture. So however their culture is different, it ought to be just as royally screwed up and disturbing as everyone else's cultures with just as many drawbacks and just as much morally compromises in order to survive.
* And, finally, if you make them rare or special, they cannot be PCs. ESPECIALLY if you say "they are super rare" or "they hide from the world"-- the moment the PCs are not just a cut above average because of their skills, but they are out-and-out born superior to everything known in this world and have to deal with none of its problems any more than they choose to-- in general that they are the one unique, special, ultra rare, one-of-a-kind, priceless snowflake and everyone in the world automatically sees just how much better they were from the day they were born than anyone else could possibly hope to attain and having just taken a single glimpse of them is a once-in-a-lifetime experience for all those lucky normal folk who have the privilege that all the world envies to have even laid eyes upon such a perfect, flawless being... yeah, all your attempts at grittiness are dead. You absolutely cannot have the option for a PC to start off in that kind of position of absolute privilege and power and still call your game "gritty". The very idea that any PC has the freedom, at will, to just say "shove all this" and go back home where they, and everyone else, can just live like royalty without any responsibilities, problems or distress where everyone can live for hundreds of years without ever having to put in a single day of hard work and have every one of their wishes and desires automatically fulfilled through magical means.... it really takes the piss out of any sort of "danger" you introduce into an adventure.
* They also cannot be treated exactly as if they were humans, just hotter, if every other race in the world is going to not be treated like typical humans. However you have altered them, there should be something about elves that an average non-evil person would be justified in being cautious or uneasy about. And that should be true of all the races. If everyone gets along and treats everyone like equals and lives together and can interbreed- why would the world even have "races" to begin with. There needs to be big social barriers keeping them all separate if they are still separate after presumably thousands of years of occupying the same spaces.
