I've never been one to endorse level limits for demi-humans in D&D. As presented in the rules with which I am most familiar (Basic/Expert D&D and 1st edition AD&D), they are a contrived solution for an alleged problem a "solution" moreover that utterly fails to offer a believable in-game explanation for its existence. However, in working out my own demi-human balancing act that does not resort to level limits, an explanation for level limits occurred to me that actually makes sense.
Consider the fairytale. In folklore and mythology, the beings we refer to as demi-humans often reside not in the world as we know it, but in a nether world that is usually unseen by mortals: a fairyland. Protagonists who interact with these beings either encounter them as intruders or visitors in our world, or are themselves transported to the nether world, either literally or allegorically. The beings are very often much more powerful in their world than in ours. It follows, then, that demi-humans who venture outside their own realm of reality (or unreality) will be limited in the practice of some of their abilities whilst away. In a role-playing game that posits the existence of levels of experience, it would be reasonable to place limits on the levels at which demi-humans may perform in the standard game world (conforming to the usual rules), but remove those limits when they are in their native nether realm. When they go home, they are at their most potent (much like devils, demons, and gods, come to think of it).
For those who don't mind or actually prefer level limits, I think this justifies it rather neatly in the context of the game world.