I totally agree with you.
Elves have gained strength and stamina over time through experience. That's why the 3rd age elves were just inferior to the ancient elves in skill and ability. Seeing the light of
Valinor and being a high
elf increases skill and ability. It has nothing to do with physical strength.
If I am not mistaken the effects of one seeing the light of Valinor [Galadrieal did] wore off and it never specified how much of a gain it was. And craftsmanship even in Valinor perhaps is overrated since the elves improved on the
valar's crafting [think Feanor and Galadriel here]
"Now the Noldor took delight in all lore and crafts, and Aule and his folk came often among them. Yet such skill had Iluvatar granted to them that in many matters.....they soon surpassed their teachers....and all the Valar were enriched by their labors."
-Morgoth's Ring Annals of Ammon Section 4 Harpercollins Publishers 1993
So I disagree that the craftsmanship was lost among the elves at least among the remaining Noldor and I think we agree the elves within ME gained in all ways over time. Here is some stuff I had written on third age increases in power/overtime and much of it focuses on craftsmanship.
Ignore Below if you Like it is on Third age Power Increasing
Individually, Noldor elves such as
Glorfindel and
Galadriel increased in power drastically. And Noldor elves returning to
Middle-earth itself was a power increase. The Noldor elves dwindled, that is true, but the
silvan elves and
men increased after the
first age. In Unfinished
Tales, we read in the
second age, "the numbers of the silvan elves grew again... man also were increasing in numbers and power."
Crafting as well saw improvements. In the second age, "the smiths of Ost-in-edil surpassed all that they had conceived before. They made
the rings of power." In The
Hobbit, we read the
dwarves of
Erebor were "at the height of their wealth and skill." In
Rivendell before the
council of Elrond,
Gloin says the dwarves "in mining and building we have surpassed
the old days." Gloin said his people decided they were ready to recapture
Moria, "now, at last, we had the power and numbers to return."
Minas Tirith was built by the Numonrians yet it was improved by the dwarves; as we read in The
peoples of Middle-earth The Tale of Years of
the third age, "the reign of King
Aragorn was long and glorious. In his time, Minas Tirith was rebuilt and made stronger and fairer than before, for the king had the assistance of the stone rights of Erebor." All the earlier
ages, great castles would translate to the third age as well. The increase in
fortresses made like
Isengard, Minas Ithuil, the
black gate, Minas Tirith,
Barad Dur,
Helms Deep, The Seats of Seeing, Echor Rammas,
Weathertop, and others was created or improved over time.
Another aspect of Tolkiens is the increase in wisdom and power over time; often, the older the being, the wiser and more powerful it becomes.
Frodo on
Gandalf the Grey's return to
the Shire observed his "face more lined with care and wisdom."
Sauron in the second age became more powerful than
Melkor in the first age, yet Sauron in the third age grew even more significant. We read in of the rings of power in the third age, "the shadow returned and its power increased...now the shadow grew even greater."
Numenoreans are another example of how power increases over time. As we read in
Akallabeth the "
Dunedain....increased in stature both of mind and body." Among the Numanorians came "
Eonwe among them and taught them and they were given wisdom and power and life more enduring than any others of mortal
race have possessed....grew wise and glorious, and in all things more like the firstborn than any other of the kindred of men."
Tolkien writes in letters 131 that "meanwhile
Númenor has grown in wealth, wisdom, and glory, under its line of great
kings of long life, directly descended from
Elros,
Earendil's son, brother of
Elrond."Overtime, an increase in power was common.
There were various technological advancements in the third age. Siege equipment saw a giant leap.
Mordor created the massive battering
ram Grond for the siege of Minas Tirith. Siege
towers, catapults, ladders, ballistic, grappling hooks were used and not seen in the first ages.
Saruman created some form of bomb or explosive to use at Helms Deep. Saruman also created napalm and used it to kill an ent during the
ents attack on
Orthanc.
There were breeding improvements in the third age, such as Saruman's breeding of the
Uruk-hai superior to the existing
orcs. As well
the trolls were bred in the third age, the trolls "no longer dull-witted, but cunning and armed with dreadful
weapons." It was in the third age they became a powerful and useful
weapon for Sauron. Sauron also improved a breed of
trolls, the
Olog-hai, over any in the first ages.
"In their beginning... the Eldar days, these were creatures of dull and impish nature and had no more language than beasts. But Sauron had made use of them, teaching them, what they could learn, and increasing their wits and wildness."
-J.R.R Tolkien Myths Transformed Morgoth's Ring HarperCollinsPublishers 2015
The
Haradrim domesticated the
Mumakil in the third age and used them in warfare.
Gandalf says Shoadofax was the "best of
horses," and he utilized
Shadowfax speed to great use in the two towers. The
Nazgul were bred and fed foul meats by Sauron in the third age to enlarge them and gave them to the
ringwraiths. When
Legolas saw one, he cried, "what new terror is this." In Appendix B of
The Lord of the Rings, we read that "
dragons reappeared" and grew in number and even great dragons returned like
Smaug. Smaug, who grew in power overtime, "I was but young and tender. Now I am old and strong."
"They [Istari] belonged solely to the third age and then departed, and none save maybe Elrond, Cirdan, and Galadriel discovered of what kind they were or whence they came."
-Unfinished Tales of Numenor and Middle-Earth The Istari Ballantine Books NY 1988
The five
wizards came to Middle-earth during the third age adding great power to the age. Gandalf the Grey to Gandalf
the White was also a drastic increase in power. Other advancements in the latter ages include the rings of power used by Galadriel, Elrond, and Gandalf.
The nine rings of men and the ringwraiths, the dwarven rings owned by Sauron. Sauron's use of the Plantir to try and control others' thoughts is another.
The rise of Mordor to great power is yet another example. Mordor grew to such power in the third age that
Treebeard said, "If Sauron of old destroyed the gardens [brown lands] the enemy today seems likely to wither all the woods." Mordors's power in the third age was such that Elrond says, "if I had a host of elves in
armor of the Eldar days, it would avail little, save to arouse the power of Mordor." When the
Witch King leads his army out of
Minas Morgul we read "so great an army never issued from that vale since the days of
Isildur's night" and "no-host so fell and strong in arms had yet assailed the fords of
Anduin, and yet it was but one and not the greatest of the hosts that Mordor now sent forth."
Denethor said the stoke against Minas Tirith was but only one finger in the hand of Sauron now moving against the free peoples. He told Gandalf, "you may triumph on the
fields of Pelennor for a day, but against the power that has now arisen, there is no victory." Gandalf actually agreed with Denethor, saying In the last debate to the free peoples' leaders to "ponder the truth in these words." Barely had they beat off the first strike, and they couldn't withstand another. Sauron had kept a more significant part of his army in Mordor because he hastened his attack due to Aragorn. He also sent forces to attack
Lorien, the Gondorian coastline, and
Dale.
More examples come from the
dead men of dunharrow being put into action. The ents uniting for the attack on Isengard as they found their numbers strong seems many
trees had become ents. The awakening of the
Balrog in Moria, the reforging of
Anduril, and the emergence of mankind uniting under Aragon who made Minas Tirith "more fair than it had ever been, even in the days of its first glory." The Nazgul, who is said in of the rings of power and the third age, were "the mightiest of Sauron's servants" and the strongest of them all the witch king himself.
Warg riders first appeared at the five
armies' battle and were used by
misty mountains and Isengard after.
In general increase takes place over time. Think of how much the
hobbits grew through the
war of the ring. If they remained in the Shire, they would have stayed as ordinary hobbits and could not have done anything with the ruffians. But they grew in power and were able to overthrow ruffians and Saruman, a
maiar, because of all they had learned and experienced.
The first ages are seen as more powerful because of the valar and maiar who were all but lost due to the earth's remaking after the assault on Valinor by the Numonrians in the second age. But if we look just at Middle-earth itself, then the loss of valar is not as significant as assumed.
The valar resided in paradise, not Middle-earth. They rarely came to Middle-earth and only fought once in the first age and none in the second. In appendix A of The Lord of the Rings, we read
Orome "alone of the valar came often to Middle-earth in the Eldar days." So the only valar lost would be Melkor, who was captured by the valar at the end of the first age. Yet, he was surpassed by Sauron's power by the second age.
If we look at the maiar who resided in Middle-earth for each age, it might surprise many—taking the conservative view here of Maiar as only those directly stated as being maiar. Rather than some who hold a more liberal view making
eagles, ents,
Ungoliant,
Huan,
Shelob, and some other creatures thrown in that category. It can't be disproved, but unless Tolkien made it clear, or there is an excellent reason, I stick to who he confirmed as maiar. So in the third age, the maiar are the 5 wizards, Sauron, the Balrog [perhaps 1 or 2 more still in hiding "the
Balrogs were destroyed, save some few that fled and hid themselves in caverns inaccessible at the roots of the earth" making a total confirmed of at least 7. Perhaps also
Tom and
Goldberry.
The first age powers are Melian [for a time], Ossë,
Ulmo [along coasts and waterways], Sauron, and the balrogs. That gives 4 plus the balrogs. If we hold to the 3-7 balrogs in total, then that would bring the total to as low as 7.
The second age has fewer Sauron and the surviving balrogs as few as 1,
Durin's Bane. Thus we do not see a drastic decrease in power with the maiar and valar regarding those who live in, or visit Middle-earth. And it seems to increase over the second age. As we read of the second age in Akallabeth, "Middle-earth went backward and light and wisdom faded."