Here is a quick justification for why elves (and perhaps other faerie demi-humans) are limited in level progression. Elves are otherworldly creatures that are not completely at home in the mundane world of humanity. Their essence (and magic) comes from a connection to their mystical home, Elf-Land (or the Feywild, or whatever you want to call it). After a time, long for a human but short for an elf, curiosity wanes and an adventuring elf must return home or be diminished.
Elf-Land could be another plane, but I prefer to think of it more in terms of mythic geography, though perhaps with some physical laws warped or changed. Like, as you go deeper into the elder forests things get weird and alien. This is closer to how people conceived magic before the great disenchantment. Somewhat related, I also love the idea in DCC RPG of elves being unable to tolerate equipment of iron (obviously also derived from folk tales). Elves begin with mithril equipment, but replacing lost equipment is difficult (a nice trade-off for their fighter/magic-user flexibility).
At the discretion of the referee, perhaps elves must periodically return to Elf-Land or start to lose magic abilities. An elf that stays to long in the world of humans will actually become mortal (in game terms, a fighter) and probably begin to forget their past existence. And maybe the opposite is true as well? Humans that stay too long in Elf-Land are also changed? Perhaps this is one source of changelings. And time, of course, also flows differently in Elf-Land.