First of all, well done on the work that has already completed on this Mod! I'm eagerly looking forward to the finished product.
I personally had started to work on one myself before I found your work, and abandoned my project. I'm pretty newb with mod-work, but if I can help in any way then I'm willing.
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That said, I have some ideas to offer since I was going through this creative process myself.
1.) Civilizations: I think the Elves could rest at just three splinter groups: Lothlorien, Mirkwood, and Rivendell. The Grey Havens could be a city state that offers nice bonuses to other elf civs, as well as Alqualonde. Valinor could be a city-state that offers extreme bonuses and simply be a hard-to-get-to place.
2.) Hobbit Uniques: I like the idea of the Shire being rewarded for trade (Merchant Civ) and seeking luxuries for Happiness bonuses. The Shire has a lower population, so perhaps some disencentives from population increase. I think bonus production of resources from plantations and happiness bonuses on luxuries, coupled with (if this is possible) some sort of bonus reward from trade deals (like a culture boost). Higher unhappiness from war is a good idea too. For military units, perhaps the small size of hobbits could allow for some unique hobbit units to sneak through enemy territory unnoticed or past barbarians.
3.) Monsters: Barbarians could be used to throw down some interesting monsters like trolls. It'd be great if Smaug could get worked in, guarding a Wonder (his treasure), but that's some complex coding.
4.) Mirkwood Uniques: I had the idea of Mirkwood civilian units (settlers, workers, Great People) moving across woods like they are a road (warpath, essentially), and Mirkwood archers that deal additional damage to units if the archer unit is on a forest tile.
5.) Lothlorien Uniques: I had the idea of Lothlorien civilian units (settlers, workers, Great People) having no terrain penalties, and Lothlorien archers having a increased range of 1 more tile.
6.) Rivendell Uniques: Rivendell is a very transit-oriented place. Elves pass through on the way to the Grey Havens, and Rivendell has a lot of connections with other places. This could be represented by Rivendell having a bonus for Open Borders deals (culture, perhaps). In the film, Rivendell elves are featured using swords, and Elrond is the caretaker for Aragorn's eventual sword - perhaps a special elven swordsman unit would work. Since Rivendell also is associated with healing, perhaps Rivendell units heal faster while in friendly territory.
7.) Magic: Have you given any thought to magic? I know that primarily this is a function of the storyline's Wizard race, but elves and dwarves also are connected with magic in the books. I'm not sure how this would be done (though I have ideas), and the animation effects might be a pain, but worth some thought.
Hope this offers some creative refreshment! Thanks again for all the hard work you've already done! I look forward to any feedback you have.