Is a falling elevator a valid inertial frame? The short answer is "yes".
The longer answer is "locally, approximately yes".
If the elevator is small enough, and you consider it over a short enough period of time, such that you can consider the "acceleration due to gravity" to be constant in magnitude and direction throughout the elevator, then, yes, within those limits it is a very good approximation of an inertial frame. Any free-falling object within the elevator will move at constant velocity relative to the elevator, and the laws of physics, locally, look identical to an inertial frame in the absence of gravity. This is the Equivalence Principle of general relativity.
But if you try to extend your elevator coordinates to cover a large distance or a very long time, you'll find that distant free-falling objects don't move at constant velocity relative to you.
In general relativity we therefore say that the frame of a free-falling observer is locally inertial.