It's interesting that the article you linked specifically states, in the very first paragraph: "a detailed Skyrim mega-mod portraying the Lord of the Rings experience with quests, iconic characters, locations, and visuals lifted from the books and films." Sounds pretty incriminating to me.
Warner Brothers must legally pursue infringements and protect their IP claims. If they don't, then it is possible that others can point to this project and use it as evidence that WB doesn't care about infringement of their rights, and even use it as evidence in court. I forget exactly how it works, but someone I know who owns some trademarks explained it. Basically, you have to demonstrate that you are defending your IP rights, or you lose them. WB cannot allow something that, basically, uses all the content to which they legally own the rights.