I've been wondering about this. Both have merits, true, but they also have shortcomings.

Mermaids:

Merits

Totally hot.
Can become human.

Shortcomings

Probably can't cook for shit due to a lack of fire in the ocean.

Analysis

But let's get something straight about mermaids. They are not cold blooded nor fish. They are mammals. This can be proven by looking at their fins. All sea creatures with horizontal fins are mammals and mermaids have horizontal fins. Now, since they are mammals that means they must give birth to live young. No laying eggs for them like a common fish. That means they must have intercourse like any human. This brings up an interesting question. Where does it...go...ya know? This has led me to the theory that the top of the fin segment lowers slightly allowing such things as intercourse, giving birth, going to the bathroom, etc.

Mermaids can also breathe air like humans with the added ability to breathe water. Here's a little secret. Humans can breathe water too. That's right. We have the ability to extract the oxygen out of water. The only problem is our lungs can't expel the waste. That's why we can drown. This leads me to conclude that mermaid lungs are exactly like ours only have the strength to expel water. So like all mammals of the sea, no gills.

So here's my thesis. Mermaids are essentially human but with two evolutionary adaptations. Slightly modified lungs and a fin. More likely than not, mermaids and humans are genetically compatible. The offspring may be sterile like a mule but even that's probably unlikely. There's probably a dominant/recessive relationship between the traits. So one would win out over the other and not create some mutant kid.

Conclusion: Mermaids are hot and 100% sexually compatible with humans.

Elf girls

Merits

Totally hot.
Elf girl ears rule.
May or may not come with wings.

Shortcomings

May lose an eye during foreplay.
Wings may get in the way.
If she is of the Santa variety, she'll be too short.

Analysis

Here's the real problem with elf girls: There are so many variations of them. Let's start with the most basic. The most basic elf girl is, like a mermaid, essentially human but this time with only one physical adaptation, namely, longer ears. The ear length can vary, however. Some elf girls have human sized ears that come to the most subtle point at the tip. Personally, I find this to be rather boring. What's the point of an elf girl if a pair of ear muffs completely hides her elfness? On the other hand, some elf girls have ears that are waaaay too long. I mean "need to keep the windows rolled down" long. That would be a real hindrance and would only serve to increase the risk of getting an eye poked out exponentially. For this reason, I have decided that the best elf girls have ears between 5 and 8 inches long with a distinct triangular shape. Long enough to be super hot but short enough to not qualify as weapons.

Aside from the ears, elf girls may or may not come with wings. Now here there is a crossover with the famous fairy. The difference between fairies and elf girls, however, is size. Fairies, though proportionally the same as full sized humans, are usually only a fraction in size. Some fairies may have the ability to grow to normal human size but still qualify as fairies. Elf girls normally can't change size. The wings, though, if the particular elf girl has them, can come in a few different varieties. The first type of wing is what I call the insect wing. It's essentially a giant version of a fly or bee wing. The second type is the butterfly wing. The third type is the vampire/bat/demon wing. Personally, I find the insect wing to be the least intrusive but can still get in the way. The butterfly wing may be pretty to look at but are just way to big. The vampire/bat/demon wing, though, can be kind of scary. Regardless of the type, however, any set of wings will just be troublesome. So my verdict: If she has wings, she needs to be able to make them disappear at will.

Finally, I refuse to acknowledge the Santa elf girl variety. Their child-like appearance would make me feel very uncomfortable. Also there is the slight possibility elf girls of any variety may have a sixth sense. They may be able to communicate with nature, God, and/or the dead. If this is just a knack, then no problem. But if they are constantly tormented by "voices" the elf girl in question may have some psychological issues. If you're lucky these issues can manifest themselves as shyness and/or timidity which can both be pretty hot. If you're not lucky they can manifest themselves as a bitter and irrational hatred for all mankind.

Conclusion: Elf girls are hottest when they have an ear length of 5 to 8 inches, no wings, and are full grown human size. If she's shy then that's cool. If she hates mankind, then she's not for me.

Final Thoughts: I am uncertain at the moment. I'm kind of torn between both. What does everyone else think? If you prefer elf girls please make sure you say what variety you prefer. Some people like wings, for instance.