If I understand your underlying premise aright, I think we might be kind of in the same boat, at least on this leg of the journey!
In The World there are two groups that share a similar dance to your Elves and Human: Teyor and Men. I think you'll understand when I say the one is among the unfallen of Gea while the other group is among the fallen. And largely for the reasons you cite: in this case, sin and a poor choice in the free will department.
Now I follow a different road with these immortal, sinless, perfected yet not perfect individuals. They look very much like Men. They don't have pointed ears. They can intermingle (but don't generally). They don't look like fantasy / movie Elves. No, if you saw a Teyor and Man enjoying some Auntie Ashgab's 72 Hour Giant Sloth Barbecue (extra hot Devil's Piss hot sauce on the side, please!) down at Uncle Ruftam's Teleranian Eatery, well, you really wouldn't notice anything to distinguish one from the other.
The physical differences that exist are primarily interior: good health is the status quo; their bodies take more punishment and heal more rapidly; they don't suffer common illnesses, maladies and syndromes; cancer is right out; they don't suffer from the same angsts and "primitive" drives gone haywire that Men do. The Teyor will be more graceful of body and movement than his Mannish companion; if Men are, generally speaking, comely, then Teyor are, generally speaking, beautiful.
The real differences lie in where you hint at, the inner, spiritual, fundamental differences. Men and Teyor alike have free will (as do most other races of Gea). Teyor chose more wisely than Men and thus did not suffer the consequences. They are thus very much like what The World's equivalent of "Adam & Eve" ought to have become had it not been for that row between Eve and Lilith...
Lilith, as everyone knows, is the first woman and Eve the second and Adam was the consort. They lived for quite a long while in the earthly paradise until the primeval Serpent comes along. Apples being as delicious as they are, Eve falls for the Serpent's sales pitch and takes delivery of a bushel of sweet goodness. She goes home and Adam sets to, after Eve talks up their golden deliciousness. Lilith, being the elder by a long shot, becomes suspicious of the grocer. A big row ensues and Eve confesses that it was a beautifully feathered Serpent she got the apples from. You know, the one whose market stall is downtown under the spreading Trees?
Adam starts choking on the apple he's eating, realising what's up. Lilith tells them they'd better go and tell Father straight away so he can go down to the market and straighten things out. But Adam is embarrassed and Eve is mortified and they both shake their heads saying "No way, no how! We'll just take the apples and hide them in the garden out back. Father will never know!"
As they head out the door, Lilith says "Well, if you aren't going to tell him, then I'll have to! Please don't make me do that!" But her words fall on deaf ears. Eve and Adam are out the door and into the depths of the garden and out of sight before Lilith can finish.
Later on, Father stops by for a visit with his favourite children. Lilith is there, of course, good girl that she is! But "where have those two rascals gotten off to?" he asks. Lilith is clearly distraught, but Father encourages her and she says "I told them I'd have to tell you even if they wouldn't!"
And so, Father hears the whole sad story and goes out into the garden calling for his children. He never does find them. Not for a long while anyway. First thing he finds is a pile of delicious looking golden apples heaped up under an old dogwood tree. He chuckles to himself "Naughty kids! Good at heart, but at least they're no good at hiding their naughtiness." All around are the remains of an old cloth sack that looks like some little rat has bitten and chewed at it.
Eventually he finds the two of them. They're hiding, crouched under a willow, crying. Both of them have scraps of Old Nix Brand Apples sack cloth tied inexpertly around their waists. Father says to them "Dear children!" But they can't look up into his eyes. They're too ashamed. He says they've been very naughty and have to go on time-out.
So, out in the wide world, it's Lilith and her children who passed the Test and she becomes the first mother of the spiritually perfected Teor; while it's Eve and her children who failed the Test and she becomes the first mother of the downfallen Men.