Hmm GOD I would like to know your view of the universe. From what I gathered you base your understanding of reality on logical facts, yes? But how do you explain the relationship between mind and matter?
If the whole conscious and unconscious process is tied inextricably to the physical arrangement of cells, molecules, electrons and whatnot in the brain, determined by it, then how to explain that the mind can have any effect on matter? We fall into materialist determinism, and free will doesn't exist?? In this view "transforming machine elves" have a physiological explanation, maybe human brains have structures that, when stimulated with the right chemicals, recognize the general presence of "beings", interpret them as "elves" in many people, who knows? My point is that a materialist approach either accepts that elves exist (unlikely), or accepts that since all thoughts are merely the reflection of chemical reactions, the elves are as real as the rest of the mind, i.e. not at all.
Or that's how I understand it. If I'm wrong, feel free to correct.