Memory Loss?

No offence Mikaya but I think you're wrong there. There weren't any mention of retribution from other elves, Castanea or not, to Atrata for her helping Taunes - the pictures which showed the other elves with the torches displayed Atrata as younger than she is now (I think), so that was probably from the first lashout at black-haired elves during a war against Giants.

And in the Falcon quest...remember Fallenone already mentioned that all non-Milletian elves share memory using the memory tower, which means Milletian elves aren't necessarily able to be stripped of their memory. And besides which, they had just unlocked a powerful ability that could benefit the elves as a whole, so Castanea wouldn't want to lose that.

G3 and Cobh is unexplained though. -.- I'm pretty sure the elves had to stay near the memory tower to remember themselves...And as for peace with Giants, the only explanation I have (that I don't think the story gave) is that it's only accepted because of the necessary unity against the dangers of the Shadow Realm, in the same way that giants and elves united against dragons in ancient times.

Yeah, the story wasn't built all too properly. At the same time, they had good gameplay backing it up, so they probably felt safe leaving it.