Answer:
Assumedly you brought the Whisperweed from Edward in Troia Castle, or else you will automatically lose. After you use the Whisperweed, the magnetic effect in the cave will disappear, and you have a chance to re-equip your metal items before stepping forward to start the fight for real.
You can hit the Dark Elf with Silence, which should make the first part of the battle really easy. After he turns into the Dark Dragon, you should Slow him with Spider Web, hitting him with your melee attacks while Tellah uses Firaga.