Oh! I didn't see this yet.
Yes, Lonewolf is correct, go back to Toroia (or Troia), the town you were just in, and talk to Edward. After he gives you the Twin Harp (or Echo Harp), go through the magnetic cave again, and you'll fight the Dark Elf without him anhillating you. Edward is on the left side of the castle, in a room.
DON'T READ ON IF YOU WANT TO DO IT YOURSELF.
Tips:
The first fight you must lose. It's a part of the story.
After that, you'll be able to equip your equipment again. You'll fight him again, and his attacks will be significantly weaker. However, he can turn your party members into pigs, so buy some Dietfood or have Tellah use Esuna/Heal to recover it.
After awhile, he'll turn into his second form (this weird dragon-y thing) and he'll be alot tougher. Keep attacking with Cecil, Yang, and Cid, and have Tellah heal as necessary. Put in a high-level spell if you get the chance. Good luck.
Yes, you'll encounter many party members who were supposed to be dead. Square didn't get it spot on this time. ^^;
END OF SPOILERS
Yeah.
