Has this really gone on for 17 pages? ####.
I apologize for extending it any further, but some thoughts keep pushing onward.
1) Copyright and all these issues of "fair use" we've been discussing apply, as best I can tell, to *specific works*. For example, I can't copy Carl Hiaasen's "Tourist Season" and sell it as my own. I can't publish the text in full on my website. We've been fond of making comparisons to Napster, where the problem is the trafficking of *complete* songs, and Vryce, where the problem is taking someone else's *complete* codebase and calling it his own. I can't take complete text from "The Hobbit" to use in my Tolkien MUSH. But copyright *doesn't* (as far as I've been able to discern) apply to ideas, concepts, place names or even necessarily *characters*. Characters and titles may certainly be trademarked - but that's a whole different ball of wax with a different set of rules and regulations. That's why Led Zeppelin can get away with using Mordor and Gollum in "Ramble On." And that's why a MUD codebase can be called Smaug. It's why a MUD can contain an area called the Shire. And it's why a MUD can call itself Shadows of Isildur. So long as Traithe is writing his own descriptions and *not* using the direct text by the author, he should be able to do so without being called a thief. He could not, from what I can tell, invite everyone to Shadow of Isildur to read chapter after chapter of Tolkien's books as they're posted.
A significant part of the problem of this entire argument is the assertion that opening a free MUD inspired by the collected works of an author is "publication of a derivative work." It *is* important and it *does* matter that there are no specific cases on point in regards to MUDs and copyright law, because we cannot state with any true authority on the pro or con side. MUDs *are* special - as with so many other quandaries created by the rise of the Internet, it's a lot more complicated than simply pointing to pre-Internet case law and saying "See!? It's illegal!"
As I've pointed out, as KaVir has pointed out, we've seen these sorts of games on the Internet for a long time. They've been written about in publications from Wired to Rolling Stone. They've been the topics of college research papers. They've been hashed out on Usenet for about a decade. They're listed at theonering.net - a site that Tolkien's staunchest intellectual property defenders probably visit occasionally. No one has seen fit to come crashing down on them, so far. (And Vivendi's hold on those MMORPG gaming rights aren't absolute, so I'm not sure it specifies that they control the ability to create non-graphical, not-so-profitable, not-so-massive RPGs inspired by Tolkien - nor are those rights even likely to last much longer, if I recall correctly, as Vivendi has been floundering financially and Universal has been eager to sell it off.)
The Internet is still a fairly new frontier and it's far too soon to start speaking in absolutes about this sort of thing. Nevertheless, I agree that we must honor the wishes of *any* author or IP holder who makes it known that they don't want these sorts of homages paid to them. Mercedes Lackey explains in her Q&A with fans that her concern isn't so much about true fans ripping her off as she is about someone suing her for stealing their ideas (true or not) or for using her realm to engage in virtual sex with minors. It's fairly hysterical sort of hand-wringing, but it *is* her property and if she doesn't want people using it for MUDs - and says so - then I can't imagine going against those wishes.
2) The whole big-number value Matt has put on the alleged violation by Traithe and other Tolkien MUD operators seems like hyperbole to me. If I base a MUD off the setting of The Lord of the Rings, the value of the book I'm basing it on isn't the net worth of the Tolkien estate or Harper Collins books. If I write an entire MUD that's just room after room described with the text from pages in "The Hobbit," what I'm ripping off is a book that runs about $5 retail in some stores. If I steal your car after writing that note to you, asking for but not receiving permission, then what I'm "stealing" is worth the current blue book value of the car - it's not the net worth of Ford Motor Company. In this case, by the way, Traithe hasn't stolen your car. It's still yours to drive. He's just made one himself using similar interior, because he really likes your sense of taste and style.
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