emulators are not truely illegal, but it is a dodgy area. If you do charge for hosting an emu then it is illegal.
This has been talked about a lot on the swgemu and swganh emu.
As for the loader, I wrote a small script to capture the parameters parsed to the lotroclient.exe but got no where. I've heard a token is parsed, where this changes is another thing. Ive brielfy looked at the luncher and invoke exes using wdm32 but did not find anything useful, as I said it was a brief look.
Reason for a client loader is so that I dont have to enter my username/password and pick the server im on....call me lazy
As for an emu, I suggest you start capturing packets now ;P
Im a lotro lifer so I have no need for an emu.