Check out the topic
Legolas is... what age?. In that discussion, some fellow downers are conjecturing that Legolas had indeed seen a balrog before, because he was in Goldolin during the first age. I'll try to put in a link to that discussion since it's relative to this one, but I'm not sure if I'm doing it right. See if this works.
http://forum.barrowdowns.com/cgi-bin...c&f=1&t=002203