Yuck lol I kid. I just hate the term Mary Sue. It normally is used for overpowered characters who never experience an obstacles. Which is the death of drama. Even if you can overcome an physical hurdle you need a moral or emotional one. It’s why I think so few writers seem to be able to tell good superman stories.
Yes, a Mary Sue character tends to be one who is so overpowered that she can achieve seemingly impossible tasks with ease, as well as a character who 'warps' the characters around her into behaving in decidedly out-of-character ways, typically because they develop a sudden love for her. Everyone is now a supporting character in her story, regardless of what role they played in the story before.
And I stand by that evaluation - Lúthien is the ultimate Mary Sue.
Sure, Beren falls in love with her, but then, there's nothing unusual about that. She's a beautiful elf maiden, after all, and he's never met anyone like her before. But then Celegorm has the same reaction, instantly smitten the moment he sees her, and Celegorm has seen beautiful elf maids before. He was, in fact, good friends with Aredhel in the before times. And then Lúthien does a lot of magic stuff that no one else can do, including sing down a tower and put Morgoth to sleep. And speaking of people acting oddly when she comes around, I would be willing to overlook Morgoth (even though I probably shouldn't be so willing), but Mandos??? No one, and I mean no one, has ever given him a sob story that moved his heart. And yet, Lúthien sings a beautiful song to him, and he's suddenly moved to pity and says, 'wait, let me go ask my boss.' She cheats death.
So yeah...total Mary Sue.
Doesn't mean it's a bad story. Of course not, it's a great story!
Thor is one of the more Superman-like characters of the MCU (presumably Captain Marvel is as well, but I didn't watch that movie). And certainly between Ragnarok and Infinity War, they were building him up to be high-powered enough that nothing could really damage him physically. You could leave him for dead, floating around in outer space, but that didn't kill him. You could shoot him with the full power of a neutron star, but he was just singed a bit. Emotionally, however, he was a wreck - he'd lost his planet and his family and an eye, and failed to save the world. So, by the time Endgame came around, sure, he was powerful...but too unstable to be trusted with any significant superheroing. Lot of stuff left to resolve in the next Guardians of the Galaxy film. He needed Rocket for counseling purposes, and that was before he failed to kill Thanos. After that, he's straight up unreliable.
Can elves go insane? Seems a human aliment to me. Not something elves would be prone too. Sorrow makes elves fade and lose the will to live, but can it muddle their sharp minds? Could be some later bard projecting a human condition onto the character in a song but is it even actually possible technicality? I could imagine him just laying down under a tree and die out of despair but to go insane? Seems un-elvish to me. Of course if one of the bad guys met him accidentally in the forest and placed him under a spell or had he drunk something from an enchanted stream such effect would be possible. But simply going insane?
Elves can go fey. That's very much canonical. And, as you point out, they can give in to despair, giving up the will to live, and just laying down to die. So, I would say that madness is an ailment that elves can experience. As for wandering indefinitely due to grief or madness, I do present the other famous First Age elven bard - Maglor is going to forsake society and wander alone for the rest of his days after he fulfilled the Oath and cast aside the silmaril.
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