You are absolutely correct, dreiche2, in saying that we're comparing the elves to vanilla Civs. However, this really isn't too far off. Some Civs have some pretty big differences from vanilla Civs (Lanun, both dwarven Civs, barb Civs), but most are still pretty standard. The more normal Civs might have some differences (vamps for Calabim, firebows for Amurites, Abashi and Eurabatres), but these are all very specific, and further, they can mostly be used effectively with only a few strategies. The Ljosalfar are unique in that their ability to build in forests makes all strategies stronger. Getting

and

bonuses comparable to the Ljosalfar
might, possibly, be alright for Civs with appropriate nerfs, but probably not for the Ljosalfar themselves.
I have a couple of reasons for saying this.
First, there is the flavor consideration. In what universe are the elves known for their ability to build massive infrastructures and train tons of soldiers? None, so far as I know. Building in forests seems alright at first glance, but the gameplay effect is bizarre for elves to have.
Second, the synergy with the Fellowship of leaves is insane. What Civ can get an extra

, an extra

, and an extra

from a tile whose improvement is normally the best available to any Civ? Only the Ljosalfar. Certainly you agree that a self sustaining tile that gives three

, four

, +1/3

, and an extra

is too much, right?
In any case, I can only see the building in forests thing working for the Ljosalfar if one of three things happens:
1) Forests give a different bonus to the Ljosalfar than they do to other Civs. For example, instead of getting an extra

from a forest tile, they get perhaps half a

, or maybe +1 (perhaps +2 if on a river)

, or maybe both if it's needed.
2) The Ljosalfar can only build nerfed improvements in forests. We could say that they build a nerfed improvement in a forest, but normal improvements elsewhere. This would mean that they'd be like a vanilla Civ without forests, but an FfH caliber one when they had enough of them.
3) The Ljosalfar can only build semi-nerfed improvements everywhere. Basically, we give a smaller penalty to their improvements (no idea what exactly it would be), and they build these improvements everywhere. They'd still be stronger than the normal ones when built in a forest, but they'd be pretty weak otherwise (meaning that the Ljosalfar would rely on forests to be a contender).
Note: none of these really deal with the ancient forest issue. I'll leave it up to other minds to think up how to balance that.
If any of these are chosen, I'd also suggest lightening up the siege restriction on the elves. It would be more balancing if they either got weaker siege weapons, siege weapons that didn't deal collateral damage (but still bombard as normal), or even more expensive siege weapons. Comments?