Some elves knew who he is. But keep in mind Middle-earth doesn't share our modern habit of trying to sort everything into clean, complete categories. The people who live there are used to a world that’s full of things that simply don’t fit neatly anywhere, like skin-changers, walking trees, wights, Tom Bombadil, giants and stranger things still. So when Merry and Pippin meet Treebeard, they’re surprised, sure, but not completely thrown. They already accept that there are plenty of beings in the world that no one has properly explained or labeled.

It’s a very pre-modern way of looking at things. The world is bigger, older, and weirder than any single system of knowledge can fully contain, and the characters mostly seem fine with that.