If a model wearing a cloak is obscured by another model (friend or foe), does it count as being hidden or does it have to be a scenary/terrain peice ? Sorry if it's a stupid question but the description is a bit vague

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Can't rain all the time.....

I am not so sure on this one myself but I'd be inclined to say no. Yes, you might get an in the way for another model being obscured by another figure, but the way I see it an elven cloak blends you into the terain, like camouflage. Otherwise, it would seam rather cheety to be hiding elven cloak wearing models by putting them being other models.

Yes, that counts. If a model wearing elven cloak is obscured by anything (no matter terrain piece or another model) it is hidden from opponent's view.

Khan is right. If you would normally have to take an ITW test if you were shooting from that position, you cannot see the model.