Wow, I was really off the mark with what I said. I'm just getting back from seeing the extended edition at my local theater, and I must've misremembered what Saruman was saying- it was the Orcs that were corrupted elves, and the Uruk-hai were not imprisoned in the earth, those mudpits really were breeding vats or something, Gandalf was recounting "crossbreeding Orcs and Goblins" to create Sauron's army of Uruk-hai.
Wow, I was really off the mark with what I said. I'm just getting back from seeing the extended edition at my local theater, and I must've misremembered what Saruman was saying- it was the Orcs that were corrupted elves, and the Uruk-hai were not imprisoned in the earth, those mudpits really were breeding vats or something, Gandalf was recounting "crossbreeding Orcs and Goblins" to create Sauron's army of Uruk-hai.