The iron sensitivity deals 1 hp of damage a day, but since the elf also has higher hit dice is this really an advantage? Also, 1st level elf starts with Mithril armor that negates this damage since its not iron. The weapon they get is also mithril. So no disadvantage at all, but an advantage in armor and weapons!
Not really. As posted in THIS
Elves are supposed to be sensitive to iron period, weapons, armour, utensils, that gate over there, iron itself is what is poisonous to the elves. It's derived from mythology, where iron was poisonous to the fae, and could even deter them as they were loathe to touch it or even go near it. Think of it more like a supernatural bane and you're on the right track. It notes that even exposure (close proximity) is uncomfortable for elves. I think enforcing the discomfort (including potential penalties after a few rounds of very close proximity) and damage from iron are vital tools in helping balance the class.
Consider that they can only purchase one weapon and piece of armour in mithril at normal cost once, and that it's not really any better than normal iron rules-wise. Neither item is magical, but both items *are* desirable and expensive. Many magical weapons and armours are still going to be iron-based (and thus still deleterious to elves), plus anyone and everyone who knows what mithril is will take a very keen interest in the elven character, making them a likely target of thieves, thugs, and anyone else who desires mithril or recognizes its worth. Add in the risk of such mithril items getting lost, broken, confiscated, or otherwise removed from play, and the elf character is going to find that they are as much liability as benefit.
Unless a magical item is described as being made of something that's distinctly "not iron/steel" then I assume it's iron/steel, but I haven't used any old modules for DCC yet, so haven't really encountered the "generic +1 weapon" approach. I'd probably rule that 90% of such items are iron/steel-based, with the rest being made of unusual metals, alloys, or other substances. Then again, I'm not fussed about life being tough for elves; they can fight, wear armour, and wield magic, so while not distinctly the best at any of those things, they do have versatility and choice on their side. I think the difficulties caused by the iron bane are great for roleplaying too; really helps make the elves feel less human.
I think it is also worth specifically noting that an Elf character isn't likely to get the last weapon and armor that they will ever want to be able to use when they get their once ever mithril discount, since that is specifically an option they have at 1st level - I know my buddy that is playing an Elf (with a particularly high Strength and moderate Intelligence) has plans to quest for mithril plate mail which he couldn't possibly have afforded at 1st level... and he'll need more mithril to re-forge his sword if he shatters it on a fumble again.