Pillager,
Actually the Medusa has the 2nd best support power after the Dragons +2. A -1 modifier is much more valuable than a +1 modifier. And that's regardless of whether it can be canceled or not. The reason is if you look at strengths. Imagine 2 stacks of 3 strength units meeting (say Lt Cavalry in a non-open square). Adding +1 to one side makes it 4v3. Subtracting one makes it 3v2. It's clear that 3/2 (1.5) is a better strength ratio for you than 4/3 (1.33) when determining hits. This rule holds true all the way to 10 strength at which point it the curve starts to slope the other direction.
I'd personally vote for the Medusa moving to qualify as Ally due to how useful it is especially if it's bonus can't be canceled.
As far as Elemental vs Medusa goes, yeah the Medusa is much more valuable a unit. So it's production and upkeep cost should reflect that. The Elemental should cost a fair bit less and have a much lower upkeep so you can maintain a fair number of them without it being too expensive.
However, I find the Elemental to be very useful in the right spot with it's attack bonus. It will be even better after being blessed in Beta3. It will be the only unit that can reach 15 strength (blessed to 7, +3 attack, +5 stack). So if I got a hero offer with Elementals AND those were near the front line I'd strongly consider taking them because I have used them as 14 strength units before when they arrived in the right spot.
KGB