Vancian Magic: This has got to go, regardless of how well it works from a game design standpoint- that is, to treat magic as just another resource for the player to manage, akin to Hit Points. A system that follows the lead of d20SW Force rules & Shadowforce Archer's Psionics rules would be better.
Tolkien Races: Get rid of the half-breeds and gnomes; the latter have no niche and the former are better handled as background feats. This leaves Elves, Dwarves, Halflings and Men; revise them to better fit their origins (and standardize the default elf off of those Moriquendi such as Mirkwood's wood elves, as they do not have nearly the powers that the other bands do), and for Men follow the Macro-Department/Macro-Species concept from Spycraft/Stargate SG-1 (so you could choose to be a Man of Rohan, a Man of Gondor, a Man of Far Harad, a Man of the Wainriders, etc. and have both choose actually mean something on your character sheet). You could do this for all of the four races, if you want to get really detailed.
Classes: Dump all but the Core Four- Cleric, Fighter, Rogue, Wizard. All of the other classes either become a series of class-specific Feat trees--i.e. Talents--(such as the Barbarian, Druid, Monk & Sorcerer) or prestige classes (the Bard, Paladin & Ranger); repeat this will all basic and prestige classes in the game, emphasizing the Feat/Talent side of the conversion equation and making prestige classes prestigious again.
Levels: Recalibrate the game so that gameplay works well past 20th level from the core rules alone, thus eliminating the need for the ELH.
Hit Points: The sticking point is how healing intereacts with Hit Points. Recalibrate this, and the majority of the problems go away.