[Gorthaur the Cruel]

But were the Istari trapped/imprisoned by the Valar and prohibited from direct displays? I've always thought they accepted their participation in the building of Earth much the same way that Frodo took upon himself the bearing of the Ring.

There's nothing in the Ainulindale or the Valaquenta to suggest such bullying power and control on the part of the Valar. Usually we would attribute to Melkor such actions, but not the Valar. We know that the Maiar were spirits who began before the World and were of the same order but of less degree than the Valar.

Okay, maybe I should've chosen better words than "trapped" and "imprisoned." I did not mean to imply that the Valar bullied with their power. But from what I've gathered from the Unifinished Tales (Of the Istari), the Istari were definitely bound in incarnate forms, forever, until their mission in ME is fulfilled. It is mentioned in the UT, that to the Istari, the vision of Valinor was somewhat like a hazy dream/vision to them, and ever they yearned for it. So while they did volunteer or agreed to set out for ME, when they were bound in flesh, they definitely were limited (not out of agreement but as a consequence of becoming incarnate) in spiritual power/magic.

The full display of their visible powers creates envy in Melkor, that figure of ego, hatred, jealousy and malice. I've always rather thought that when the Istari came to Earth this terrible lesson was remembered and the forms chosen were chosen for their ability not to create envy and not to increase jealousy, competition, hatred, distrust or mistrust. So, while outwardly they appeared to be frail humans (or, in the case of Olorin, elves), and were susceptible to the same ills as any Child of Illuvatar, that did not essentially lessen their powers. Olorin still had the power, for instance, of putting fair visions or promptings of wisdom into the hearts of the children of Illuvatar, the source of which the Children did not know. In fact, it was probably this very invisibility and the Children's inability to attribute the thoughts to another being that enabled Olorin to do his work. Had he been recognised, the visions would most likely have been questioned and his wisdom rejected and descried.

Well that is true, in a sense. I agree that the full displays of power would create fear and envy among those who were less mighty, but that is precisely why they were locked in those incarnate forms by the Valar, after they were nominated to go to ME. I truly believe they were lessened by their incarnate forms. Why else would Cirdan surrender Narya to Gandalf? In his true maia form, he wouldn't need Narya's support, but he does need it in his incarnate form to ward off the weariness. And these fair promptings or visions of wisdom, this was his power in the West. But when he came to ME, that is why Narya was surrendered to him because it worked accordingly with his natural powers to inspire. This gives me the impression that in incarnate form, Gandalf isn't effective in inspiring peoples of ME like he was in the West in his true form. Hence why Cirdan surrendered Narya to him for that much needed power boost. Without Narya, he would not be able to accomplish some of the feats.

So, the question isn't about diluted states or a lessening of power, but of how that power is displayed, and to whom, and what context. The full power still remains; it is simply hidden. The challenge for the Istari was to apply that power in ways which would not evoke envy, malice, fear.

The full power remains? I'd have to disagree. Why else were the Istari dependent on their staves? When Gandalf broke Saruman's staff, Saruman was greatly diminished... almost insignificant. Same thing when Grima warned the Warden at the Golden Hall to have Gandalf part with his staff (how effective is the White Rider without it?). Lastly, why was Gandalf afraid of the Witch-king (or why was the Witch-king so confident he'd mop Gandalf to the floor) at their meeting in the gates of Minas Tirith? No, they were definitely powered down, I believe. Because if the only challenege was the righteous application of that power ("full" power, as you said), then Saruman would have been more effective, through and through, in his machinations, considering he was deemed mightiest in the order. Gandalf wouldn't have accepted Narya. And the Istari would have had no problem forsaking their old-men-incognito for a much more powerful and less restrictive form (e.g. Melian), especially for Saruman who has fallen from the right path.

I hope I'm making sense.