well... i dont know ive never actually swung a sword before (woe is me ;( ) but i can see where both of you are coming from... maybe if the sword is really really light, the elf could hold it losely like that, but if it is heavier (like i imagine most swords would be) then i would think he would have to grip it tighter to keep it from flying out of his hand
on the other hand, it seems like alot of times in movies when there is like a samurai he seems to hold it like that every once in a while, but seriously, how reliable are movies?
i think i would go with gripping it tighter like arcane said