Now I'm sure everyone who's knocking about in this corner of the internet is aware that fairies, trolls and other woodland nature spirits all started out as genuinely terrifying monsters and only became cutesy and whimsical creatures in relatively recent times.

So why did Western Europe's folk creatures become mostly harmless novelties while the folk creatures of North America remained warnings to children against wandering out into the woods alone in spite of being part of the same cultural group? I think it has to do with the 1800's when the ideas for these creatures were bing codified.

You see in the 1800's most of Europe's wolves, bears and big cats were dead, meaning the biggest danger of wandering in a Western European woodland was getting lost. This meant that the wilderness was a novelty, not a danger, and the understanding of woodland folk creatures morphed in the cultural zeitgeist to reflect that.

In North America the woods were still filled with genuinely dangerous creatures, so the local folk creatures remained the cautionary tails they started out as.

Does this seem like the right track to anyone else?

Sure, invite the harmless looking magical creature into your house. There is no way it will curse your family for 10 generations or eat your soul the moment you fail to uphold some untold bullshit rule about hospitability that is exclusive to the specific hungarian forest it comes from or something.