that sounds like quite the cake, especially for your first project. yes, i think you can just go ahead and do the head and face free-hand (you might want to use marshmallows to build up the eyes and nose -- attach them with toothpicks and then pipe over them to make the spherical eyes and nose) -- but remember that elmo's head is wider at the bottom and flatter in front than the bear pan's head (you could build up the head on the sides before icing, or do pull-out stars to give the fullness -- i once used the bear pan to do a koala and i pulled out the ears with icing to good effect).
also, i would ignore the folded arms of the bear pan, and pipe arms on the side that conclude with hands resting on the bottom cake or even over the edges, and i imagine that you'll be piping legs and feet that dangle over the side or stick out, resting on the top of the cake. i would definitely use a good strong dowel (wilton's hollow plastic dowel rods are good) to anchor the cakes together, and it certainly wouldn't hurt to make elmo a little platform (why not make a board with a hole cut out in the centre for the dowel rod and then impale elmo on the dowel (don't let small children watch you do this, as i'm sure you can imagine).
the bear pan will work, but it is rather heavy. you might want to consider using the mini-bear 3-D mold. also, the proportions of the big bear pan are a little fat for elmo -- his neck is rather more narrow, and his torso is longer, but it should work. alternately, if you have time to get out to your local cake pan shop, pick up the wilton elmo flat character pan -- it's a breeze to decorate, and you could put it on top of your 1/2 sheet cake, with no dowelling, and it would travel much better.