In most strategy games, elite units generally come from "green" units that start out with low experience and slowly gain levels through combat.  Units attaining elite status can be anything from lowly spearmen to mighty paladins, and in game like Master of Magic, an elite squad of spearmen would be stuck as an elite squad of spearmen.  Granted, in Elemental you will be able to upgrade your units, it's still quite likely that your elite units will end up with pretty much the same gear as many of your green units, because you'll always be equipping and reequipping your units with your best gear.  I fear this may be the route Elemental is going: we'll see peasant boys turned promptly into green-horn death knights or paladins.

So I was thinking that perhaps while your units gain experience and levels in combat, something else happens as well.  Some of your soldiers distinguish themselves in combat and ascend to a higher level of "soldierdom."  After combat when experience is tallied, a certain proportion of your regulars are upgraded to veterans based on that experience gain (their numbers being replaced automatically in the unit they came from).  They would then go into a pool of veterans that can be retrained and re-equipped with better weapons and armor at your capital.  These new veteran units would be a step above your normal units and could use weapons and armor upgrades that your green and regular units would not normally be able to use.  They might also get "bonus training upgrades" that are only privy to elite units.  For instance, your regular soldiers may only be restricted to non-magical weapons and light to medium chain armor.  Your veterans could wear plate mail and flame swords.  Your elite could use magical, reinforced plate armor and swords of flame call.  Some techs might even revolve around specifically equipping non-regular units.  And once your veterans go into combat and succeed, a proportion of them will upgrade to "elite" units as well (perhaps there might even be a super elite tier as well.)  I envision the ratio of your regular, veteran, elite, and super elite units being something to the effect of around 100/25/5/1.  Of course this ratio would be different depending on whether you protect or throw away your elite units in warfare. 

What this does is allow elite units to truly shine, not only because they are stronger, better trained, and have better gear than your regulars, but because they are very difficult to replace.  Not to mention, you won't be seeing thousands of death knights and paladins swarming the battlefield, because it may be a requirement that they must be elite or super elite in order to take the armor, training, and weapons necessary to be a death knight or paladin. 

Decisive battles can be fought in warfare in stead of "tug-of-wars," too.  Normally, if you lose a stack of units (and this is especially true in Total War), you can just crank out rough equivalents with little effort.  With this system though, if you've been cultivating elite units throughout 3 wars and they are thrown away, you won't be replacing them for a very long time and you take a critical blow for the duration of the war.  What's more, you might also be able to gain elite soldiers at a greater rate with special techs, buildings, or spells (in addition to generating some passively in your society by cultivating a warrior/philosopher culture.)

Not to mention there are plenty of interesting quest tie ins: save the temple of Fer'nor from invading monsters and take your choice of a raw 100 veteran or 25 elite soldiers to be trained as you see fit.