Because Bretons.
Bretons are the ultimage Elf killers, they have a magic resistance while being proficient at magic themselves wich is very good because Altmer have a weakness to getting hit my magic. Besides, the Imperials also have good mages, light infantry, archers and cavalry to take down mages quickly.
Not to mention the heavy legions.
I wouldn't say the Thalmor have the Empire by the neck, but I'm sure they'd like to give off that impression. The Dominion is severely weakened and probably won't replenish those forces for the very reason Alduin mentioned. Female elves have very few births in their life time, unlike human based races, and thus prevents them from replenishing troops as fast as humans.
The Dominions position should now be defensive, and it's hard to make friends when they have just angered their neighbors.
If the Empire retains Skyrim, the Empire will win the next war.
Even if the Elves won all humans would rebel constantly and there would be no hope for peace.
Seems like an intresting storyline for the series though. Elven victory ===> Human Rebellion ====> Argonian intervention with some very mean revenge ====> Human and Elves as wel as the beast races unite to fight these sudden hate driven invaders ====> They win at a great cost. ====> All Human, Elven and beast kingdoms are exhausted and ruined, ====> Akaviri Races arrive ====> ????? =====> Profit???