Has anyone encountered problems with changing the resolution setting? mine automatically resets to 800x
600. I will select the desired setting, the screen resets and looks great, but when I select okay to keep changes it reverts back

The most (all?) of the other Lego games use a text file to store their settings, so I would try to manually set resolution there. Or you could try to remove the file and see what happens. Search for pcconfig.txt in %APPDATA%\Warner SOMETHING SOMETHING\LEGO Lord of the Rings\ not sure about the exact path, but it should be something like that.