Kelethin would burn, but you'd have to burn the whole of Greater Faydark to do it.
All those druids at the rings all across Norrath, most of which look elven to me. They would control the druid rings and I guarantee the Feir'Dal would have the Treants on their side. To burn down the city in the trees you'd first have to enter Greater Faydark and get to their city. Unless you plan on burning down the entire forest at once, it could be difficult to accomplish.
EDIT: Just wanted to add that yes it has been done before but I believe that is why it would be difficult for it to happen again. Not to mention in this scenario we're assuming it is all out war with all the other cities of Norrath so they would call in all their allies for defense. They could hold out for a while I believe (and eventually burn) but they'd never be able to capture other cities because they'd have so much work just defending themselves.
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