I run into a thread in another forum that I thought people here might find interesting. It is written by a guy highly-interested in medieval history, and contains all kinds of gems. While directed at D&D, I'm sure ArM players will find it interesting. The main thread is
This seems very unlikly to me. Ãlf means elf and heim home in norse, so Ãlfheim translates directly into Elf-home. However this isn't the home of the elves, but the home of King Ãlf. Ãlfheimr - the dwelling of the light-elves are another place. Completely unrelated, but King Ãlf's grandson was none other then Gandalf according to Snorre Sturluson...
If (as I guess) you have studied linguistics and are familiar with etymology, then you are aware of both false-cognates and the tendency for names to migrate towards common or colorful words, especially if the original term is archaic or forgotten.
That is to say, we all know that "words change over time". Simply because it, currently, can be "directly translated" does not mean it originated from that same word.
(But nor do I put any perfect faith in a Wiki article, not without having read the citations... and even then, depending.)
OK, I must admit that (as I wrote) this was from my gut-feeling. I'm Norwegian, and as you said, I've studied some linguistics, so the guess was somehow qualified. Now I've done some research and I think I've found the source of the wiki-article: