There could be a great use of a writer here to make great lore!, I like your idea there could be a mountain called for example. Summit of death = mount doom and they would not attack unless you go with in range of them of if you would, lets say have the wizard of the town “gandalf” cast a protective spell, But if you attack first they respond
that could be hard, and might go in later
i will start thinking of addons gameplay wise 
Geoffers, want me to help you get a faction+units list together? :]
Anyone can, I’ll have a look in a few hours but if someone has done something in the meantime then go for it!
a list from LOTR war of the ring, as a reference as to fractions and units.
Gondor and Arnor
The race of men, knights and rangers make up there ranks.
Kingdom of Rohan
also the race of men, light and heavy Calvary in these ranks though.
The Elven Kingdoms
could be split in to high elf and wood elf, skilled warriors and expert archers.
The Dwarf holds
the race of dwarfs, guess these could be seen as your heavy infantry.
The Forgotten Kingdoms
under this banner stands hobbit and ent folk, even great eagles as well as the colored wizards.
Mordor
the race of orcs, trolls and uruk-hai. some deadly spirits here too.
the Fortress of Isengard
wild men, orc troll and uruk-hai work together here, the orcs are mounted and he uruk-hai also scout.
The Misty Mountains
goblins! and also sorts of beast and monsters (this is where the balrog would go)
The Fallen Realms
the men who serve the dark lord r here, including the war Mumaks of harad.
Angmar
more orcs, ghosts too, and more monsters.
i know we cant use these factions but if u want similar then change the names but use the factions.
hec the dark lord could even be a very powerful titan that uses magic.
any way food for thought im done typing for now
Working on an Excel sheet with the factions right now! 
A list of structures, items, and iconic locations might also be useful.
Luckily for us we already have a working idea of units and buildings through the Battle For Middle Earth franchise.
You might find this page useful:
http://lotr.wikia.com/wiki/The_Lord_of_the_Rings:The_Battle_for_Middle-earth_II(List_of_units_and_buildings)
My take on your list then from a much more racial view and expanding to nin combat attributes based entirely off your examples. It probably doesn’t help with me finding the actual lotr books as some of the most boring I’ve ever read.
Arndor: better warriors, better hunters, more pious?
Rowam: better with all animals, better with farming
High elves: magic and artistry oriented version?
Wood elves: most nature aligned mortal race. Basically superior rowan with lower pop count
Halflings: short humans, middle race, stockiness, adaptability, and nature. High luck
Ghosts: no idea here, could be anything from hp to a ring wraith
Orcs: large brutish humanoids, stronger, heavier, dumber
Trolls: I prefer discworld trolls out of all versions myself, pity really how different they are
Bonus!
Elemental spirits: balrogs are corrupted spirits of fire, having a race of non corrupted elementals based off them could be interesting and fairly unique
Going to put it onto Google Docs in a bit, so it’s easier for everyone to access. I’ve put it some basic units from the top of my head, we could add many more if we want.
i think for this to be done well you would want people to pick a faction and stick to it, so as 2 peoples art styles don’t clash, you could get some really nice stuff that way, and everything from one group would be similar. i myself would not mind doing some of what ever we call the fallen realms stuff.
https://docs.google.com/spreadsheet/pub?key=AlGZxSDa-jEkdGdrMWl6c3JOcU5TRDdhR1BzOVRfX3c&output=html
Right, that should keep everyone busy for a bit. Want me to put other stuff into sheets as well?
My initial feeling is that it should be simplified … Just to confirm is this a list of playable races, or all the units you envisage being in?
Playable factions on the left, units on the right. It could easily be limited to like 4-6 units per faction though.
thinking from the modding aspect factions would be generated first from a population file then the outfits would come form a profession, anyone could try and make an elf and the community would pick it favorite (but you could still put you own) and they would maybe be altered to mix styles
And i really dig the whole each race has specific traits
**Good work guys **
Now i really have to get qubicle, Since the stonehearth edition was just released
AND ONE THING NEEDS TO BE IN THIS
the prancing pony = galloping or leaping horse ? (heroes and warriors would get morality boost leading to strength
I could add race-specific traits to the empty space under the faction names. It’ll probably be something like Strenght for Orcs, Intelligence/Magic/Whatever for Elves etc, right?
Just tell me what to change and I’m on it 
yeah it would need some thought first… 
I’ll start by simplifying the unit roster, then I’ll think of some traits! ^^
Is there any way for us unwashed masses to edit the spreadsheet? Because there are a few that I’d like to add myself.
https://docs.google.com/spreadsheet/cc?key=0AlGZxSDa-jEkdEFFeEVwb1VHbGNwOGFZMGh3Q1lJTmc&usp=sharing
Like SquareGabe said, we can’t really have a roster that big. If you have any units that have to be on there and I accidently forgot, please reply to my comment!
EDIT: Changed the link, I kind of goofed it up a bit.
Is anyone making Wargs? If not I might like to try make them but I don’t know how to animate so is there someone here who will animate the models or are we waiting just to reskin previously made animations?
Go for it! 
Rigging should be manageable 