Goldberry: People watch each others' games all of the time. I don't know anyone who objects to being watched, though I suppose if someone did they might tell you? Back when we were running a tournament there were some rules about spying on others deck, but those were clear-cut and it was a special situation. I wouldn't worry about it at all.
As far as etiquette goes, if you want to chat or kibitz with another watcher, you can do it by putting the mouse in the lower-right chat box so you don't disturb the game. Also, it's good to know that you can rearrange the cards on the table as you see fit, move them around to get a better look... and it doesn't affect the players' game! Only your screen.
As for learning the game, I'd suggest starting with FotR block and letting your opponent know that you are new(ish). Hang out with us on TLHH and work your way up the ranks, and soon you'll be a LotR junkie like the rest of us.

EDIT: Alternate Ringbearers were introduced in set nine, and the red tokens on each player's dead pile are called "threats" -- a concept that started in King Block (set seven).