This is standard Werewolf, with a few changes:

Corruption and Resistance. In Lord of the Rings, the price of magic is often Corruption. Each role has a Resistance Level, which determines how much Corruption they can withstand without turning to darkness.
The One Ring and Other Artifacts. These can be represented by physical objects or cards, but should be small enough to hide since some roles want to kill people who have artifacts.
New Roles and Teams. Lots of 'em. Teams include Team Sauron, Team Goblin, Team Corruption, and Team Good.

Corruption

Every character has a Resistance level, which determines how much Corruption they can take before losing themselves to the darkness and becoming Corrupt. All good characters have at least Resistance 1 unless otherwise stated, so they can absorb a single Corruption without consequences.

Corrupt players retain their original abilities, but join Team Corruption along with anyone else who is already Corrupt.
This not the same team as Team Sauron. Although Sauron and his followers are corrupt, Team Corruption wants to cast Sauron down and keep the One Ring for themselves.
To win, they must kill everyone who is not part of their team, and one of them must possess the One Ring at the end of the game.

Team Sauron

Sauron and his followers are lost to corruption, but through service to the dark god Melkor, retain an identity separate from other Corrupt players.

Sauron: Corruption has no effect.

Each night, awakens and gives an Evil artifact to one player. These gifts are often useful but cause Corruption.
Wakes with the Ring Wraiths and helps select the night kill.
If Sauron has the ring, he gets an additional kill at night.

Ring Wraiths: Corruption has no effect. Werewolves.

The Witch King: Corruption has no effect. Wakes with the Ring Wraiths. Can only be killed by magic. If lynched, the Witch King reveals and stays in the game.

If the Ring Wraiths kill a ring bearer, Sauron gets the ring immediately.

Wormtongue: Corruption has no effect.

Minion (knows all members of Team Evil, but they do not know Wormtongue).
Once per game, can mass corrupt everyone holding an evil gift for 1 point.
Once per game, during a trial, can reveal his card and force all bearers of evil artifacts vote the way Wormtongue votes.

Team Corruption

Separate and distinct from Team Sauron, all Corrupt players not dominated by Sauron's rings end up here. These seek to cast down Sauron and go about their various evil goals.

Smeagol: Third Party. Starts corrupted, and always knows who has the ring. Can steal the ring if adjacent (but cannot steal it from Sauron).

Team Goblin

Twisted abominations, the goblins serve only the Great Goblin.

The Great Goblin: Resistance Infinite. Wakes with the Goblins and chooses someone to kill.

Goblin Sapper: Resistance Infinite. Explodes on death, killing his neighbors.

Goblin Warrior: Resistance Infinite. Wakes with the Goblins and chooses someone to kill.

Third Party

Smaug: Resistance Infinite. Third Party.

Can choose to kill at night and collect the artifacts of his victims.
Must collect 7 artifacts total and survive to the end of the game to win.
Once Smaug collects 7 treasures, he unlocks a one-time use desolation attack that kills three adjacent players.
Smaug cannot be killed by lynching. If Smaug is lynched, his card is flipped and he can then by killed by magic.
Smaug can also be killed by Black Arrows at any time (an artifact).

Team Good

Frodo: Resistance Infinite. If Frodo can keep the ring for four whole days, he reaches mount doom and instantly wins.

Samwise Gangee: Resistance 2. Can die to keep Frodo alive.

Gandalf the Gray: Resistance 2.

Can cheat death once.
Can kill with magic once.

Sarumon the White: Resistance 2.

Can cheat death once.
Can kill with magic once.
Always knows how many evil players are in the game.

Aragorn: Bodyguard, but can protect the same player each night.

Legolas: Once per game, can reveal his card and shoot three adjacent players with arrows. Also gets a kill upon death.

Elven Archer: Hunter (on death, choose someone to shoot).

Elendil: During the day, can sacrifice himself to kill whoever is the current Ring Bearer. The Ring moves to a random player that night.

Galadriel: Resistance 3.

PI (once per game, check a group of three adjacent players for evil. Only gets a thumbs up or thumbs down.)
Once per game, remove all corruption from one player.
Once per game, instantly kill a corrupt player.
Once per game, can release the One Ring's hold on any Good player, including herself.

Dwarf-Lord: Resistance 2.

Destroy evil items: will auto-destroy evil magical items such as the Rings of Power, converting them to Treasure. This does not work on the One Ring or the Arkenstone.
Must have at least 4 artifacts at the end of the game to win with Team Good.

Celebrimbor: Resistance 2. Each night, wakes up and gives two Good artifact to players of his choice.

Elrond: Resistance 2.

When the ring-bearer dies, Elrond secretly chooses who gets the ring next.
If Elrond is dead when the ring-bearer dies, the ring decides which adjacent neighbor to hop to. It will usually move towards Sauron, but Precious is tricksy.

Artifacts

Most artifacts are cards. They should be kept hidden since Smaug wants to kill people and collect as many as possible.

Evil Artifacts

The One Ring has a mind of its own and is controlled by the Moderator. In general, it wants to return to Sauron, but may behave in confusing ways to throw people off.

The One Ring can take the following actions of its own free will:

At the start of each night, Corrupts its wearer by 1 point.
Can hop to an adjacent player at any time, making its way towards Sauron. However, it may choose to stay with an important player long enough to make them Corrupt.

The Ring Bearer also gets the following abilities:

Pass the ring: If the Bearer is not corrupted, they can secretly give the ring to any player at night. They can also give the ring away during the day if the receiving player agrees but this is unwise since it reveals too much information.
Wear the ring: Physically wear the ring (it is a gold ring). This has two effects: it makes the bearer immune to lynching, and recharges any one-time use powers the bearer may have.

Ring of Power (minor)

Whoever bears this cannot let it go.
If a ring bearer becomes corrupt, instead of joining The Corrupt, they join Team Sauron.
Once per game, a ring bearer may reveal that they have a ring and kill another player during the day, but they will gain 1 corruption.

The Arkenstone:

Whoever bears this cannot let it go. It corrupts the bearer for 1 point every other night.
If the Dwarf Lord gets the Arkenstone, he must keep it and cannot use his destroy magical item ability on it.

Good artifacts

Palantir: Whoever has the Palantir can look at a player’s entire card, but will incur 1 corruption.

Note that because we use a very obvious crystal ball prop for the Palantir, Smaug cannot get this by killing the bearer, since that would be broken.

Glamdrang: if adjacent to a goblin, the bearer knows and can kill one per night.

Sting: if adjacent to a goblin, the bearer knows and can kill one per night.

Black Arrows (3): The bearer can fire this at any time. If the target is Smaug, Smaug dies. The arrow is destroyed when fired.

Narya (the ring of fire): hides the bearer from the Palantir, and replenishes 1 resistance to someone of the bearer’s choice each night.

Phial of Galadriel: When activated, the bearer cannot be killed at night. Destroyed upon use.

Treasure: No special abilities, but some roles like Smaug and the Dwarf Lord want it.

Mithril Vest: the bearer can cheat death one time.

Athelas (healing herb): Recharge a player’s one time use ability and restore 1 resistance.

Moderator Notes

Two Mods: This game requires a separate mod just for managing artifacts.

Managing One-Time User Powers and Artifacts: Rather than constantly waking up every play who might want to use a one-time user power, ask players to raise their hand if they want to use an optional power. This keeps the game moving faster.

Also, requiring players to use artifacts during the day not only speeds the game up but it adds a lot of drama.

Movement: In this game, players should be allowed to move around switch seats. This provides cover for Smeagol, who is always trying to steal the ring by moving next to the ring bearer, as well as the use of various artifacts and tactical use of Goblin Sappers, which explode upon death.