No I'm not confusing slavery and servitude, but rather commenting on the morality of the Thalmor. You're arguing a straw man. If they condone the torture of servants and indentured servitude I don't think the Thalmor as portrayed directly by several character would have any qualms about slavery, and that was my point. Now I will conceed I may be right, or wrong, I might be poorly stated as well, but you are not really arguing to my point. So I have nothing to say really.
... and that's exactly what I'm saying: you're confusing two different things. In the Elder Scrolls world, slavery is not always perceived as a bad thing. It's not linked with morality. Our own perception of slavery is that it's a bad thing for two reasons:
1- In our mind, we associate slavery with bad treatment. Just like the Talmor does.
2- A slave is a strict inferior to everyone that's free, and that's bad. But in the Elder Scrolls (just like in our antiquity by the way), some people are superior to others.
I think that in the Elder Scrolls, the most enslaved people are Argonians and Khajiit (but I might be wrong, I played Morrowind more than the others). They are not treated like inferiors because they are slaves, but they are slaves because they are viewed as inferiors. So indeed, there is a direct link betwenn the two things... but this is not necessarily perceived as being morally wrong. The goal is that the player will make a decision (generally he will try to free the slaves and get a reward for that).
So I think I might reconsider my opinion: slavery means different things in different areas of Tamriel. The slave of a vampire is not the same thing as the argonian slave in Vvardenfell mines... and there are probably other kinds of slave, whose common point is to be the property of their master, and generally they are not the property of a state or a ruler. In fact, the raiding mechanics are perhaps the best way to model the way slavery exists in Tamriel, otehrwise it would be too much work for nithing... Is there any example of a noble person being enslaved? Usually when you seize a noble, you ask for a ransom or try to extort him (just like in CK2 without mods).
A other thing that we might need to considerer are the inspirations for the elves. As a very ancient cultures, they sometimes have a behaviour that recall the ancient greeks. It might explain why slavery is an elvish thing (even if vampires or Tsaesci may have slaves as well).
By the way, don't take it too seriously, we are talking about fictionnal statements about a fictional world... At the end, everyone can be right about that question. I think we should preferably choose the one that's the more interesting as a mechanics for the mod.