[Amechra]

Actually, to put a more unique twist on the Fey attacking travellers bit...

Maybe when someone is slain by a Fey, they are taken back to the Fey's burrow, where sinister machinery and magic converts them into a living elf; elves, though long lived, have no childhoods and are slaves to their Fey masters.

Using Virdish's idea as well, you could make it so that elves are a result of both processes, with Half-Born elves thinking themselves superior (a rigid caste system for players to free themselves and others from, perhaps? With Fey treating both groups as slaves, with the Dead-Born being the slaves of the Half-Born?)

Maybe there could be a squatter-empire of elves somewhere, where, though the idealistic elf that codified the laws there (fey are ultra-lawful, if you look at the stories; they follow their laws to the letter, and the punishment is... harsh) decreed an end to slavery, old habits die hard...

As for what happens when a Fey sleeps with an elf... who knows? Monsters could come out, or maybe it even cancels out their fey nature, resulting in a human child...

And I still like Magic Sword, though, of course, we could mix them up, like, I don't know, Sword of Orcus?