>>Next, it takes a lot of work to change all of the creatures in order to make them fit, for instance many players would get pretty annoyed if they remembered that no living man may harm the Morguhl Lord.
It doesn't take much. For starters, the Morguhl Lord is such a major character, that if you allow your characters to kill him, well, you're screwing up the plot line
Second, it's a pretty magically scarce world. How many people were running around with magical weapons above a certain +? Mostly a few hobbits, 1 ranger, and a wizard. And, third, it's not hard to add a single line of text to a critter that says "final blow can only be struck by a hobbit/female". Most critters though, you stick a sword in it, it dies. The rest are not described very well.
As for the realism, it works out okay. Let's face it... the common people die left and right. The heroes do pretty good. Look at how many arrows Boromir took. The level of realism is more of a player thing. Some people prefer to play under Chartmaster (well, Rolemaster, I guess). Other people prefer to play a bit faster type of game like D&D. That's personal preference. What makes it work is the GM. Did Frodo survive the spear in the dwarven halls because it was stopped by Mithril or because it didn't do enough hp's to kill him? Doesn't matter, really. All that matters is that the GM says he's alive because the Mithril stopped the spear. Did Gimli and Legalos kill so many orcs because they've got great skills and didn't roll something that says 'you chop off your own arm'... or did they have enough levels to cleave through a horde of orcs? Again, it doesn't matter.
If your GM can make the world feel alive, then there you are. If he can't, then, sure, you can have a bunch of rules that make it 'realistic'... but it won't be as enjoyable. The main thing about the system is that it must be able to generate appropriate type characters and be flexible enough to allow for the generation of a few rules to cover game world specific instances.