The denizens of Another World include humans, elves, and demons. Why?
First, elves and demons are a convention of games: they mark Another World as gamelike rather than "literary". Another World is meant to be an olive-branch to the game world, and elves and demons are a convenient shorthand. Many people -- including some leading game theorists -- understand that Tolkien is the key precedent but completely misunderstand why these fantastic folk are important.
"Tolkein’s importance has little to do with the maps that adorn his endpapers. Yes, Tolkein spoke of writing as a journey through imagined worlds, but this perception is not uncommon. Neither is it necessarily helpful in understanding either Middle Earth or interactive art. Yes, he kept elaborate notebooks. This is not uncommon, either: we know many of the War Poets through their notebooks. (Tolkein on The Somme was 24, and if no poppies bloom in the Dead Marshes, we still recognize the muck and thirst of Flanders refracted through the memory of the Burma Road and Stalingrad and That Fucking Island, the land even Marines would not name.)" -- Mark Bernstein, "And Back Again", First Person: New Media as Story, Performance and Game, edited by Pat Harrigan and Noah Wardrip-Fruin. MIT Press, in press.
Second, it's a useful way to evade a political headache. Another World is an immigrant drama, a story about the tensions of a world where your neighbor is Not From Here, where none of us are very familiar with the Fields We Know. If you don't like humans, elves and demons, think Normans, Scots, and Welsh ("I can summon spirits from the vasty deep!").
Or, for that matter, the Blacks, the Jews, and the Swedes in Old Chicago. Or, the Romans, the Cimbri, and the Ubii. This saves us from layers of unwanted contemporary politics; we can generalize about elves and still march in the Columbus Day parade.
Torill Mortensen asks, "what would elves see in people, anyway?" In fact, there's a long tradition. Tam Lin (or Thomas Rhymer), one of the Child Ballads, is the story of a fellow who meets the Queen of Elfland on the road and spends a night dancing with her -- a night that lasts 40 years. (Brenda Laurel told a variant of this story at Digital Storytelling 4) For an edgy, modern view of faery love, see Lauren Hamilton's "elven-American princess" Meredith Gentry:
"Faeries, after all, are sexual predators, deeply concerned with power and seduction, and (like all immortals) fascinated by pain." -- from my review (but note that Hamilton's fairies are not anything like the elves of Another World)
Finally, the point of archetypes is their archetypical. In Another World, elves are materialists: they live in the moment and can't imagine why any intelligent life form would worry about anything they can't observe. On the other hand, demons are mystics. Humans are alien outsiders, muddled, but not without a certain attraction to elves and demons alike. (more on AnotherWorld)