Actually the elves themselves were probably the only race in Middle Earth not to be weakened by the passage of time, unlike the Númenorean descendants (the dúnedain) and the dwarves. The Dwarves lost a lot of their lore, power, people, knowledge and most likely ale also when they lost Khazad-Dûm, and Gimli even mentions that some things they can never forge as well as the dwarven smithmasters of old.
The Dúnedain...well..take a look only at the decline of Gondor before the defeat of Sauron.
The elves however were however not weakned, not in the sense that the race faltered like the dúnedain had in the south. Those elves that were "strong enough to kill Balrogs" were those of the kind that sailed with Fëanor and marched with Fingolfin, the exiled Noldor.
Those who however were lingering in Middle Earth, the Sindar/wood elves of Lothlórien and their wood elf brethren in Mirkwood were however not as advanced as their Noldor cousins, nor did they possess the same prowess in arms, nor wisdom as the exiled Noldor.
So lore wise, no, the elves did not decline in the prowess of arms or strength of spirit. The only thing they DID decline in was numbers, as the elven population has slowly but steadily declined over the ages since the fall of Gil-Galad at the end of the Second Age.
Also, elves killing Balrogs. Let's just say that was NOT a common ocurrance, only a few were strong enough to withstand a Balrog and they normally lost their lives in the process if they attempted to slay one.
Ah well, I love lore
