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I have read it and have had it explained to me by several IP attorneys at seminars. Whether or not a use is commercial only comes into play with respect to determining fair use if you have a valid affirmative defense based on educational use. E.g., it is fair use for a public school to make multiple copies of a portion of a literary work in order to aid in classroom instruction. It is generally not fair use for a profitable private educational institution to do so. Also note that there is an explicit difference between educational use and scholarly use. It is fair use to quote portions of a relevant work in a technical trade journal, for instance, even if said journal is profitable (critical difference: instructing individuals in a field vs. advancing the state of the art of the field). WIth respect to a fair use affirmative defense based on parody, whether or not the use is commercial is entirely irrelevant.
Your banner is obviously not educational. Whether or not you profit from it is irrelevant with respect to determining fair use.
Wrong. You must specify the nature of your plea and provide evidence of and argue its validity.
As an aside, while I believe that your banner is a fair use (due to the text in question comprising an insignificant portion of Tolkien's work), it is also doubtful that it is a parody. The legal definition of parody is, roughly, a humorous form of social commentary that is achieved by contrasting a well-known original work and a parodic twin. The Daily Show's use of real news clips is a good example of parody, as are songs by Wierd Al Yankovic (e.g., the infamous Amish Paradise) and various Mel Brooks films. The primary purpose of your use of the phrase in your banner is, arguably, to use the association between the phrase and Tolkien's work to generate interest in your MUD, and not to provide a humorous social commentary of Tolkien's work, likely invalidating an affirmative defense based on parody.
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