My understanding is a bit fuzzy as well -- it's been a long time since I ran Earthdawn -- but I'm pretty sure that's not correct. Below is what I've worked out: it's a mix of direct statements and strong implication in the source material.
- All elves, immortal and non, are the product of draconic magic: they were originally created by the dragons (from human stock, I would presume) to be their servants, as well as to take care of the dragons' bodies during the downcycle. Alamais/Alamaise was the one who came up with the idea. This was done during the Second Age. Immortal elves were intended to be the bosses/overseers/favored servants.
- Sometime during the late Second Age, an IE whose name I forget (although there was an implication, IIRC, that she was related to Alachia or was Alachia herself) led a rebellion and freed the elves, inflicting a horrible wound on Alamaise in the process. There are references to a scar on Alamaise's chest in Earthdawn (and I *think* in Shadowrun as well) that's where it comes from. The dragons were beginning to go nighty-night at the time, and couldn't do much about it.
- In the early Fourth Age, Alamaise attempted to reclaim the elves as servants. With typical draconic sense of tact (i.e. none) he did it by eating an elven Queen. Needless to say, this did not endear him to anyone. Alachia came to power as Queen in the primary Elven community at the time (called Wyrm Wood) and kept power for a good long time, doing her best to fan the flames of hatred. (Alachia is a b*tch of the first water, but that's neither here nor there.)
- Icewing (aka Ghostwalker), in a search for more reliable servants, drew on his well-known mastery of spirits and invented the ritual to create Drakes. Drakes in ED source material were created from pure mana. Some time later, a young Human girl (named Aardelea) came along who could somehow acquire and exhibit Drake abilities. There was a series of ED adventures and adventure seeds that had the party rescue her at Icewing's behest, lose her to (I think) the Therans, rescue her again, etc. The implication is that this is where the SR Drakes came from, but that's pure conjecture.
- Mating with metahumans (or at least mating with metahumans to produce children) was, in Draconic society, a complete and utter no-no. A great dragon named Denairastas the Outcast did it anyway, using his progeny as servants. I don't remember whether he was outcast for doing it, or whether he did it because he was outcast and Icewing wouldn't give him the drake creation ritual, but the fact remains that he was the only one to do it, and the other dragons hated him for it. Since he doesn't appear to be around anymore, and Dunkelzahn/Ghostwalker survived till the 6th age, I would assume the prohibition on children is still in place.... although there is at least one dragon in SR canon who does the blanket hornpipe with metahumans, so maybe non-procreation is OK...
My understanding is that elves existed as an aspect of humanity before dragons meddled with them, dragons needed servants (read slaves) to do their biddings while they were sleeping/meditating but they didn't consider metahumans worthy of serving them so they chose to create their own servant by having kins from them; Alamais fleeing from his brother went to wyrmwood and estabilished there, had kins/slaves from local elves and created the basis of elven culture by telling them that they were superior to other races because they were dragonblooded (later became because they were elves), in time people got fed up of kissing dragon's paws and rebelled, one of the leaders (maybe THE leader) was Alamais's own doughter who died in the battle in which she inflicted the famous wound to the dragon (yes the scar is always there in SR), later he met with the queen Dallia and ended in turning her into ashes; after the revolt of the metahumans the age of the dragons ended and interbreeding betwen dragons and metahumans was forbidden, the Outcast became such because he refused to stop making dragonkins, he was able to produce drakes. In SR one of the Big D's Watchers were the son of a (japanese?) pop singer that claimed that she had been impregnated by a dragon (the watcher exibites some peculiar abilities).