I say that combat is still going, because combat is still going. The elf stopping does not stop combat. It only stops the elf from attacking. And yes, the elf can in fact be attacked while hidden. In AD&D, which is what we are discussing, elves who are invisible or hidden can be attacked. Combat hasn't stopped.
From p 70 of the DMG:
Invisible Opponents: Invisible opponents are always at an advantage. They can only be attacked if they are attacking or otherwise detected somehow.
Remember that elves can move silently, so detection is a matter of having the magical ability to do so. If invisible elves have been magically located, however, then they are not hidden.
We're talking about D&D. Chainmail is not D&D. It's the miniatures wargame that led to D&D. A miniatures wargame has a different design philosophy than an RPG does, so it's little wonder that when you compare apples and carrots(this isn't even the same kind of food), you see differences.
Nonsense. Chainmail is the default rules of combat for D&D. If you want to know how combat works in D&D you need to read Chainmail. Using the "Alternative Combat System" doesn't get you out of reading Chainmail, as references to it are found throughout D&D. That's why it's listed as recommended equipment along with dice, pencils, and paper.
When talking about AD&D, elves can be directly observed while hiding and are still in combat when they do hide since they can be attacked still.
No they can't be attacked still. See the above passage from the DMG. It works pretty much like it does in Chainmail.
That's a bunch of hooey. You can attack OR you can do something else. The prohibition is action economy, not some sort of mythical "can't hide while observed" limitation that you want to invent.
Elves can become visible and attack in the same turn (one minute), meaning they can remain invisible all the way up to the moment of the attack. There is no restriction that would require them to spend the entire turn visible so they could attack instead, as an "action economy" explanation would suggest. No, the elves can't continue to blend in while attacking because in the moment of the attack their position is revealed, and you can't hide when your position is known.
The rule allows them to hide while 6 inches in front of the face of an attacker, so long as they are in a natural environment. That's a fact.
No, it allows them to become "invisible", and not while attacking. Also, if they hide successfully this way they cannot be attacked and therefore have removed themselves from combat. According to the DMG, p 60, if a creature is observed becoming invisible, it is not hidden and can be attacked with "the standard penalty (-4) for inability to see the target." The 5e ability
Mask of the Wild, however, does not grant the wood elf the power to become "invisible" without first successfully hiding.