FYI - here is a great read I always link to on if you can see the difference of 1080p in general - http://carltonbale.com/1080p-does-matter
So there is little point using HD media if you sit 5m back from a small TV.
For me I have no issues appreciating 1080p on my 60" Plasma at a viewing distance of 2m over SD. I must say however that the big boost with Blu is also the Audio Quality as instead of 5.1 channels sharing only 640kbps (a lower bitrate per channel than most 2ch MP3!), you have lossless sound that decodes at almost 5mbps...such an audio track alone can take up more disc space than a whole DVD!
Well, I have a 40" LCD screen that works very well with 1080p material (and I took the time to self-calibrate the TV within my skill). The only weak link with the DVD boxset of LOTR is the DTS since it is of course the lossy format. It would be awesome to hear the battle and fight scenes in DTS-MA! And the music played throughout is breathtaking (even on DVD). The last 'small TV' I had was a 20" Panasonic I bought in the late 90's which my mom has and still works very well.
I think I still may take the plunge and get the BD set, and give the DVD set I currently have to my dad since he loves those movies too (but he doesn't have any HD gear). Plus it will be nice that the DVD EE I spent $80 several years ago won't go to waste. I figured that any movie made 2000-up and depending on how well the transfer was done would be worth buying on Bluray. Anything older I will stick with just DVD.
From some of the reviews I read on the BD set there was mention of green tint issues on the FOTR...have you noticed this at all? I have a pretty good eye for detail though I may not catch everything at one time.