: I think that they did know that a balrog was Durin's Bane. Gimli, upon seeing it immediately called it Durin's Bane he sounded positive. Also when Celeborn(?) heard about it he said that he wouldn't have let a dwarf in if he had known they had AGAIN awoken it. So it is clear that the dwarves had told some people and that they probably knew it was a Balrog.

There is no indication that Celeborn knew that it was a Balrog, only that something fell and dark was there. Indeed, Legolas says to Celeborn, as if in explanation:

"'It was a Balrog of Morgoth,' said Legolas; `of all elf-banes the most deadly, save the One who sits in the Dark Tower.'"

And then Celeborn replies first with

"'Alas! ' said Celeborn. `We long have feared that under Caradhras a terror slept."

Before stating that "he wouldn't have let a dwarf in if he had known they had AGAIN awoken it". Which isn't completely true either. Rather, he says:

"But had I known that the Dwarves had stirred up this evil in Moria again, l would have forbidden you to pass the northern borders, you and all that went with you."

Even Celeborn does not name it as a known terror, but rather a "feared" one, which intimates that the elves were uncertain what the creature was. Since the dwarves were the only ones who confronted it upon its release, then they must not have known either, or if they had known, and being very secretive (since Gandalf says: "The Dwarves tell no tale; but . . . they delved too greedily and too deep, and disturbed that from which they fled, Durin's Bane.") then they certainly didn't tell the elves of Lothlórien.

And Gimli never names it a Balrog in the explanation to Celeborn, but rather always refers to it as "Durin's Bain". Only after leaving the Lothlórien des he reflect back on the Balrog of Moria, and that in relation to Nazgul that Legolas shoots from the sky or in the questioning of Gandalf's return. Prior to that, Gimli gives no indication that the dwarves knew what it was that attacked them.

Gandalf, for his part, doesn't seem to know what Durin's Bane is prior to meeting it on the Bridge of Khazad Dum. In relating of the fall of the dwarf kingdom he too refers to the Balrog as "Durin's Bane". Since it was brought up before hand, one would think he would have been prepared for the monster. But rather, even he is dismayed by the appearence of the creature and his needed confrontation of it:

"'A Balrog,' muttered Gandalf. `Now I understand.' He faltered and leaned heavily on his staff. `What an evil fortune! And I am already weary.'"

The key phrase here is "Now I understand." Whether he is referring to now understanding what drove the dwarves from Khazad Dum in the first place, what destroyed Balin and the company who tried to retake Moria, or what had confronted him outside the Chamber of Marzarbul is not certain, perhaps all three. But the revelation can not be overlooked, and the fact that he did not know prior seems support by the text.

All of this suggests that while it was known something was in Moria, it also suggests that it was not known what it was that the dwarves had awoken, or that Balin had stirred it up again prior to the arrival of the Company.

-RR