This is the type of news I love to hear. It seems that in a recent Q and A on The Offical Loreena Mckennit website www.quinlanroad.com Mckennit avoided a question regarding her involvement in the LOTR production! Attention PJ! I know you're reading this! This is what I would love to see:

a) Have a great score album done by Kilar (still rumored)
b) Have ANOTHER album of all of Tolkiens songs from the book! With singers like Sting and Seal and Mckennit! (rant mode cancel)

Anyway, this is what Mckennit had to say:

Q: A murmur had circulated that you might participate in the soundtrack of THE LORD OF THE RINGS film, is it right?

LM: That has been an overture. I am not completely clear where that stands at the moment.

Thanks to Mithrandir_777 for the tip!

Source: View Complete Q and A

Update

Listen to more of her here.