They might have gone to the Palace - as simple as this. I don't remember the exact quote of that first statement. Wasn't it along the lines: ...they are bound to space and time of the Palace...? Maybe the spirit "life" is not linear, not bound to the passing of time the way the living elves are? And when they die they go where the Palace is - no matter whether it is present, past or future seen from the time of death. (Sorry, it's kinda hard to word it right.) And when they were drawn to the Little Palace as the next available spirit home it need not be crowed at all. Final Quest explained that the spirits are not "packed within" the crystal walls of the Palace. There is a huge spirit sphere around the Palace, reaching far beyond the borders of Abode. They could have built a sphere a around the Little Palace as well.