Upon reflection, I realize my earlier concerns about using Fairie in Pendragon were more general concerns about using the supernatural and the fantastic in general, including giants and goblins. Fairie have a certain mystery about them, but goblins seem more mundane, and giants even less so.

So how do you use these creatures in Pendragon without things seeming too much like generic fantasy?

Well, I'd still think that goblins are part of the Faerie, so my earlier answer in http://nocturnal-media.com/forum/index.php?topic=1611.0 still stands.

As for the giants, well, they are the traditional go-to enemies for the knights, when the author wishes to show how badass a knight is. One way to combat the D&D-fication is to give each Giant a name and a sense of history in the local folk lore, rather than just have 'a giant'. Some distinguishing marks to individualize the giant. But in the end, the sense I get from some of the latter stories especially (Lancelot and his ilk) is really a hack and slash through giants like no tomorrow. So some D&D-fication is actually appropriate to the source material.

One thing to remember that the medium giants and bigger are next to impervious to the knights' weapons, and able to squish them with a single hit. That breeds a healthy respect for the giants in most of my players, whereas in high level D&D giants become the 'orcs' to be killed willy-nilly. Unless your PKs have skills in the high 20s, this is unlikely to happen in Pendragon.

Just had the PKs in my game fighting the Water Leapers from 488 (in 489 actually). Those seem just like standard D&D random encounter monsters, yet I made them look like some real scary creature way before they reached the place.

I told them about how hard it was to sleep the night before the incursion, just hearing the noises made by the creatures far from their camp, they fond some mutilated bodies near water, the fishermen would refuse to help in panic, and so on. I gave my PKs a lot of background on those specific creatures as they inquired the commoners and noblemen about it, so they would not look like the monsters of the year, but some remarkable foe they would proudly sing about next court season.

The Water Leapers are moderately strong enemies and attack all against a single opponent. They are not strong enough nor skilled enough to hurt most of PKs badly, yet they can easily drown them, which is awful. Of course my PKs suffer from a severe case of paranoia, so they used a rope to tie themselves to the boats, and tied all the boats near each other. And yet they survived.

Anyway, I think the magic of non-D&D-fication of pendragon is to give creatures something that D&D won't bother to: a purpose. They are there for some reason, and this reason should be more important than the creature itself. They should have legends about them, mostly fake and obviously exaggerated, and some Faerie Lore or Folk Lore would help PKs to know what is real and what is not - even a big boar in Pendragon is surrounded by "the creature is larger than a house".

Another thing I do is I describe any creature as the PKs should see it, not as it is. A giant horse-like creature with a entire snake in place of a hear, skin of a leopard and horns... or a giraffe :).

Also, if everything else fails, in KAP 4e there is this "Glamour" stuff, illusion magic, so if you actually need to excuse some lame D&D-ish stuff, you can just say it was magic and vanishes after the PKs deal with it.