I don't think rushing the demo is a good idea either. Also I can't say I'd be interested in a LotR fangame.
Having played the extended demo, I think you need to pay more attention to the characters and their motives. Brett does give me the feeling he's someone who kinda let others drag him along, but Rika's motive to stay with the party looked more like an excuse. A reason for her to stay with the party that doesn't really connect to her persona isn't very satisfying.
Have you worked out what her feelings are and what she wants? It doesn't look this way in the demo. She could have a hidden motive and the description of her does say that don't show her true emotions, but that should be better hinted at then. This does also apply to the other characters. They aren't really doing a very good job of showing or hinting at that they have their own desires. Not to say that they appear to be emotionless, they don't, but their emotions seem thrown a bit into the background and doesn't appear to be connected to why they are doing what they are doing.
Now, there appeared some sort of crisis near the end of the demo. The rule of thumb is that how much the player care about the crisis is in direct relation to how much the player knows about the object of the crisis. The player is far less likely to care about a town she/he never visited than a town which is bubbling with life and where that player also got to know a few NPCs.
As I said before, I think the characters have a certain charm to them and the story you laid out seem workable, but they need more work.