Yeah, but you don't need one billion elves to fuel the bots.
No? How many pints of blood does it take to run a single Elf Bot, and how quickly does that Elf Bot burn through that blood (a human can donate about 1/2 a pint per month)? Once the blood is extracted from an elf, is it a simple matter of injecting it into an Elf Bot, or does the blood need to be processed or refined in some way? How many Elf Bots will it take to replace the entire elf work force, and how much blood will those hundreds of millions of Bots need per month?
That's also plenty of time to realize how dumb using blood is and replace it with oil.
They're not using elf blood out of stupidity; the game implied there's something about elf blood that is required in order for the Bots to function, and that there is no viable substitute that they know of. Whatever that "something" is cannot be replaced with oil, or they'd have been doing so already; I highly doubt their first thought when creating a robot was "how about filling it with elf blood, just to see what happens?"
Probably not financially viable, but I'm pretty sure mass cloning is cheaper than breeding and buying.
Doubtful; if it were cheaper to clone than to breed, then Syl'ananr would already be cloning elves rather than breeding them the old-fashioned way. Since they're not doing that, it's safe to conclude that cloning isn't an economically viable option.
Clone the organs you need, put them into the bot and you're done.
Do you know how blood is made in a human being? Bone marrow and kidneys (specifically a hormone called erythropoietin). And you can't just fill an Elf Bot with some bones, slap a kidney in the chassis, and expect them to produce blood cells; without a functioning central nervous system, cardiopulmonary system, and digestive system, they won't do anything. Basically, they'd need to be connected to a living thing in order to function properly (i.e an elf, in this case).