Men he found the easiest to sway of all the peoples of the Earth; but long he sought to persuade the Elves to his service, for he knew that the Firstborn had the greater power; and he went far and wide among them, and his hue was still that of one both fair and wise. Only to Lindon he did not come, for Gil-galad and Elrond doubted him and his fair-seeming, and though they knew not who in truth he was they would not admit him to that land. But elsewhere the Elves received him gladly, and few among them hearkened to the messengers from Lindon bidding them beware; for Sauron took to himself the name of Annatar, the Lord of Gifts, and they had at first much profit from his friendship. (...)
It was in Eregion that the counsels of Sauron were most gladly received, for in that land the Noldor desired ever to increase the skill and subtlety of their works. (...)
J.R.R. Tolkien The Silmarillion
I have such a soft spot for villains *.*" Probably because they are usually way more interesting than the plain old borring good-guys... So yes, I totally understand how could Narmeleth fall for him, I would probably fall for him too...
I also find his outfit very interesting... those red adorns looks like blood flowing over him and certainly do make him look like a predator.
Some of you might wonder why is he not named Annatar in game - my guess would be it is due to the fact that Turbine doesn't own rights to Silmarillion, but they somehow wanted to point LotR fans towards the right track in Narmeleth's history.
Edit: A visit to the Forges of Mirobel payed off in us discovering this painting of the Gift-lord. One of the more remarkable pieces found in LotRO, if I may say so myself - the details are astounding. I love how the typical red-leafed trees of Mirobel look like flames behind Sauron... We can see (at least I believe so) the three rings of the Elves, but also - I guess - the One Ring already. But the elves were not aware of Sauron's intentions before One Ring was created...
I guess the writing on the wall paint would shed some more light on why and when it was created. I can't really decipher it well, I think the first word means something along the lines of "the one who creates and spreads jewels" or simpler "the creator and giver of jewels" and middle word "elf-friend" or "everyone's friend", but I'm not sure, neither I'm any sure of the last word which I translated as "story-teller". But if my very sturdy knowledge of elvish (and to think that I'm an elf!) are any good, this should indicate (the middle-word at least) that it was created before Sauron forged The One. And thus The One should not really be there on this wall ;)
And of course it's worth-wile to notice the dread - even if you don't know who he was, a mere reference to him gives you more dread than any elf-stone can cure!