Burrahobbit: Good point. I don't see any way to fit in that quote with my item 2 above. For that matter, I don't see any way of reconciling it with Judeo-Christian theology. Surely there couldn't have been a fall without free will of some kind? Perhaps it's a matter of interpretation - maybe Iluvatar means that, because Melkor's free will has its source in Iluvatar, it will prove to be the case that, no matter what Melkor chooses to do with his free will, it will further the cause of good.
Incidentally, I've just been reading Verlyn Flieger's Splintered Light, a fascinating look at Tolkien's theory of fantasy and the way in which he put it into practice. Flieger notes the problem of the possible Elvish lack of free will and suggests that perhaps Elvish free will takes this form: Elves have free will with respect to their internal nature, but not with respect to their external actions. I find this wholly unsatisfactory - surely one's actions proceed from one's nature.
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