I think LOTR certainly has the popularity to support itself as a Third Gate, but even if you gave it that much space I don't think it would solve the creative problem of representing multiple locations - it would just create the same problems on a bigger scale IMO. Sure, if each 'land' was a separate location you could build more of each location and make each one bigger (I'd be the first to go running to a full-sized Rivendell, I admit) but it would then jar even more walking between them. Imagine walking the distance of the bridge between MSHI and POE, but on one side having Rivendell and on the other The Shire. It would feel wrong, sight lines would be a nightmare... I just don't think it would work. I would be ecstatic if LOTR ever came to Universal, but I don't think this would be the way to do it.
To be perfectly honest, I have no idea what would be the way to do it. It's just so enormous.