This is a more strange interpretation from some of the events in the BRCS forum, but are can be applied to 2nd ed so I though I would paste it here.

This post depends on a few things.

Elves have spirits. When they die, they do not pass onto the Shadow world to reach another plane. They reach a communal pool where they await another elf to be born so that the spirit is reborn. They probably wait in the area they died at. (Would elven spirits be a form of Mebhaighl? I will have to think of that.)

There are only a finite number of elven spirits. For creatures that do not age, there needs to be a limit on the upper maximum of elves.

With those two points I have the following idea.

When the elves at Deisamaar died they were absorbed into Cerilia at the mountain. When the blast leveled that site, the elven spirits were sent into the Shadow World along with Azrai's essence.

The spirits are foreign to the Shadow World and were not allowed to enter the communal pool (if there even is one.) They were forced back into the bodies that were brought over in the explosion. Those with the strongest force of personality became intelligent, while others were diluted into many bodies, forming some of the legions roaming the SW. (I assumed some bodies were too badly damaged, so any body was inhabited. Not just elven corpses.)

This would have two effects. The Cerilian spirit pool is diminished. This could explain the shrinking numbers of elves and the loss of land for lack of caretakers. Until the spirit pool is replenished, there CAN NOT be as many elves as the battle at Deisamaar.

The other point is that some of the undead hordes roaming the SW contain the spirits of the elves. They are just trying to find ways to rejoin Cerilia to rejoin Cerilian spirit pool.

They have spent all this time, sundered from their family and are just trying to get home. Until they are 'killed' on Cerilian, they just find another body and try again.