i already use LOTR portraits but making this mod would probably result in completely reprogramming the game (which is not clever).
if u really like RPG there r 3 LOTR games out at the mo:
the official fellowship one by black label games:
good but short
the PS2 two towers:
supposed to be good but short again
or u could buy the one by interplay (though i have never seen it) which is based on the Neveverwinter Nights engine which is more or less BG2. u level up etc.
but ur right, it would make one ace mod (i wonder if u could romance arwen and fight aragorn for her
)