The Fellowship of the Ring
Yep.
1) The first in a trilogy.
The other two are NOT called the Two Towers or The Return of the King (presumably because you are only playing the Hobbits) but Shadows of Mordor and The Crack of Doom.
2) Choose one of four playable characters (an option that's a bit uncommon for this genre)
At least, I'm not that familiar with text adventure games with four playables. Its Frodo, Sam, Merry and Pippin.
3) Wait, the lead character has a collection of photos? That can't be right...
In the Hobbit Den, there are photos Frodo and Bilbo own.
4) Comes packaged with the source material EDIT: (or I guess for clarity, the source material comes packaged with it)
Like the Hobbit, this comes with the first Lord of the Rings book.
5) Despite graphical limitations, one character still has a blue jacket.
6) As for his boots, their color in this game is undetermined.
Talkin' bout Tom Bombadil.
7) The game that came before this one was a hit. This game more coolly received. The final one didn't even get a wikipedia page.
The Hobbit was a very popular text adventure. This was less popular, in part because the puzzles aren't as good.
8) Remember to feed your gluttonous characters. Bread should do (though there is a sumptuous feast for you in the woods).
Yep, they get hungry.
9) You're starting point is the same place as the previous game in the series but you can't play the same character.
You start in the Hobbit hole but you aren't playing Bilbo.