Jim's comments are good ones. I only have an impression from the Hobbit
and the first part of LOTR (I never finished the trilogy, may never finish
it), but magic seemed to be used sparingly by the
"protagonist" characters. Gandalf in The Hobbit only uses magic a couple
of times: one to throw little bits of fire down at, was it goblins in
the Mirkwood? I can't remember if those were made of pine cones
only in the cartoon or in the book as well. However, Gandalf also uses it
to survive, or return from, the dead, when he and the Balrog get into
their wrasslin' match and fall off the bridge.
But my impression of magic in LOTR from the whole discussion at the
beginning is that there is this sense in which power (or its
use) corrupts, by changing the nature of the user.
The way you could apply this in the game is difficult. I would probably
make magic very difficult to use, as well . . . integrate it into the
environment (maybe like cairns in Werewolf:TA) -- who knows but that
Gandalf was also loathe to use magic because it could be unreliable in
places? If you had an alignment system (bleah) or a good RPer you could
also have them play some of the corruption or something, maybe with little
reminders of the way magic changes its user here and there -- tiny,
unnoticeable (to others) physiological changes, for example, things like
that.
If you've not read it, there is a neato companion book to LOTR by David
Day called Tolkien's ring, which kind of shows a lot of the sources
Tolkien used and was interested in, as well as some other bits of history
and mythology that resonate with LOTR even if they werenm't direct
sources. The bit on Wotan/Odin is particularly useful for the idea of the
"wizard" as a kind of rare, godlike being of a different nature than the
"normals" around him/her. Might be an interesting thing to have in a game,
either as a semi-NPC (ie. player who plays in a different role than
non-magic using PCs) or as a PC who has a lot more going on in the area of
offstage events than the others. You could do a lot of wonderful stuff
with this.
Good luck with the game design!
Gord