Luke and The Hobbit

I have been reading The Hobbit to seven-year-old Daniel and six-year-old Luke for the last several weeks.  We have also watched the cartoon and Peter Jackson movie versions.  Last night, a confused and dismayed Luke asked me why the cartoon elves were old, green, and scary while the elves in the other movie looked like regular people.  I said when you write a book or make a movie, you can make the characters look however you want.  He sat up in bed and asked, "You mean elves aren't real?"