On Cosmology
Two greater gods, locked in constant conflict and pulling the world between them? I've got two for you from Earth's history: The Sun and Moon. Set up the Sun as a creator of energy, and the Moon as an absorber and reflecter, and BHAM. Instant ideological incomprehension, and neither is able to overcome the other. Give them accompanying Angelic Hosts of Helions and Lunites, and you have a cosmic war.
At the time of the game, they'd be recovering from the latest bout of fighting. Either dead (or as dead as a God can be) or at truce (one in the sky at a time, taking turns). The Ragnarok of the world being when the truce is broken, as the two go back to fighting.
I also like the idea of an Otherworld, overlapped and influencing/influenced by the normal Earth.
On Magic
You don't want the traditional classical elements. I've got another set for you: Body, Anima, and Spirit.
Body is Earth. It contains and provides form for the other elements. It's difficult to shape by magical means unless its your own body. It gathers spirit to itself, especially when properly shaped. Blood's structure makes it ideal for holding spirit, and magic that is powered by spirit stored in blood is predictably called Blood Magic.
Anima is Motion. It is easily influenced by Spirit, and easily influences Body. This means that 99% of magic is focused on Anima, and the remaining 1% go through Anima to act on the other elements. Anima is energy: pump Anima into something and it'll get hotter. Pump enough, fast enough, and the atoms (I'm using bastardized Greek philosophy here, they had atoms) in it will explode. Anima can also be used to move things without exploding them. Or, well, most magical stuff.
Spirit is the Soul. It's a guiding force for Body and Anima. A wizard uses his spirit to influence anima to cause the effect he wants, but he can also use others spirits (which has a hefty initial cost because of the necessity of moving through all the elements) in what would probably be regarded as Black Magic. Spirit directs the anima, and as such leaves the wizard's body, and is difficult to retrieve. So they have to rest after doing a lot of mumbo jumbo, or find a battery.
The Law of Conservation of Magic can also be invoked. You can't make more Body, Anima, or Spirit, only work with what is already there. A wizard needs to find the anima he needs to blow up a mountain, a necromancer needs to steal the spirit from someone to get his zombies working and a shapeshifter can't gain 300 pounds or turn into a giant (though he can lose weight, but that comes with obvious problems).
A mage would be able to influence his Body to slow its decay, with practice, and as such could live for centuries. During which he would get more and more efficient in his manipulation of the elements.
Black Magic, operating on the Law of Conservation, would obviously be much stronger than White Magic that only relied on a mage's own strength. Which is a nice effect that encourages people to be evil, leaving only real men as good guys.
Magic would require a good deal of preparation in order to maximize your efficiency. Magic circles, rituals, and proper focuses would help ensure that as little valuable Spirit and Anima is wasted. On-the-fly sorcery would be costly and draining: it'd be even more tiring to throw someone across a room than it would be to pick them up and do it physically. Staffs, wands, and rods would come in handy, but most mages would still be at their best working with a silver pentagram.
On Elves
Lj knows my love of real elves, not Tolkien's Blonde Prettyboys. I demand the traditional Faerie, and not as a playable race but as the enigmatic batshit crazy inhabitants of the Otherworld.