Their fire magic did not come from demonic sources.
They siphon energy from demons, but back then this was implied that it was simply converted into Mana (as there was no specific Fel/Arcane magic division back then). Demons just happened to be a magical source of energy, like an elemental creature. It's kinda like how the TBC intro showed that Elf turning that mana wyrm into a little pool of mana/arcane energy.
However the fire magic they cast is still purely arcane magic. One thing to note - Blood Elf eyes were not green in Warcraft 3. This was a TBC retcon, and even then it doesn't imply that the magic they use is Fel just because their eyes turned green. All of their racials were still Arcane based, and so are Kael's abilities in TBC.

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