The point of LotR is to create dynamic IC interaction. Creating multiple "playable" factions, while braoding possibilities, reduces this because players from one faction will be far more interested in fighting everyone else then themselves because of the threat level - remove the horrible AI and replace it with a human, and you create a greater threat. Make external threats weak, and everyone turns inward. Human nature at it's finest.

In summary, the larger game lacks the IC tension that the smaller game does.