The Lord of the Rings Online Interview, Part One
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Q: How expansive are the environments? Will players see the Shire and go into the mines of Moria?
A: At launch, LOTRO will take place in Eriador, which contains familiar areas like the Shire, Rivendell, Bree, Misty Mountains, Ered Luin, Fornost, Angmar, MidegeWater and many more. The outdoor environments are vast, and if you can see something in the distance you can probably run to it (though it might take you a while!). A few of our encounters are instanced, particularly underground or indoors, but the majority of the world is open and explorable and fully detailed our Worldbuilding team actually hand-places most of the rocks, trees, and other landmarks throughout the game. Moria is planned to be included in a later expansion.