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Go with the elite team! Your kid will have better competition in games and more importantly will be likely stuck on tier one team. Harder to get on elite team in every subsequent year. Do it now.
It's obvious your player has some skill as a squirt and as long as he has a good coach and team around him at Tier 1, he will still develop and probably get more ice on the Tier 1 team. To be on the bottom of a roster of an elite team only helps when you can brag on the Dboard, buy some team gear or want to brag to parents with zero going on in their own lives wishing their kid had the same ability.
When he gets to high school, it's a lock/safe bet that the coach will never ask or care that your son played on an elite team in the Fed or on the team below it. What he will want to see is that your kid has the fundamentals to play the game at the next level - end of story.
Go with the elite team. This way he can talk about how he played elite hockey during his youth while playing in his beer league at 26