In my last piece (Greensleeves), I tried using simple arpeggios as an accompaniment. The next thing I wanted to explore was a guitar technique called finger picking. This is a more complex arpeggio like pattern that is common in folk music. I decided to try doing Scarborough Fair (the Simon and Garfunkel version) because I really like this song.
First I transcribed the melody, and tried working out my own chords to see what I would come up with:

[scarborough-lyrics.mid]
The Simon and Garfunkel version uses similar chords to this. There is no Bm in the last line, and instead of Em, they alternate between E7sus4 and Esus2 using finger picking. I found a good video on youtube that explains how to play the finger picking pattern.
http://www.youtube.com/watch?v=SV67GgFhWlI
Below is the E7sus4 Esus2 pattern:

A capo is used on the 7th fret to transpose this to the key of E. As you can see you just pluck the same sequence of strings with your right hand, and only move two fingers in the chord your are playing on your left hand. But why do they use E7sus4 and Esus2 instead of plain Em? I think this is a sort of double tonic alternating between they keys of E and D. The E7sus4 chord contains the notes D and A, which forms a D5 chord, while the Esus2 is mostly a doubled E5 chord. And since there is no third in the suspended chords, it creates a droney, medieval sound.
In addition to finger picking, there is a combination of strummed chords, hammer-ons, and “walk downs” (short runs of passing tones between chords). These variations keep the song from becoming monotonous and accentuate important words in the song. For example, there is a little trill or mordent played on the words “true” or “love”.
Because I am writing for the LOTRO ABC player, I tried to make sure the whole thing fit in 3 octaves. Unfortunately, the voice part should ideally be an octave higher to make it stand out, but that would go over 3 octaves. I will try to make it into a duet later, so a flute or clarinet can play the vocal part.
Also I limited the strummed chords to 3 notes, since playing more notes doesn’t seem to improve the sound in LOTRO. Too many notes at once seems to make the song sound muddled, and sometimes laggy.

[scarborough.mid]
X: 1
T: Scarborough Fair [Astleigh of Landroval] (1:16)
Z: Transcribed by LotRO MIDI Player: http://lotro.acasylum.com/midi
% Original file: scarborough.mid
% Transpose: -8
L: 1/4
Q: 70
K: C
^G,/4 ^d/4 ^F/4 =F/4 ^c/4 ^F/4 ^C/4 ^d/4 ^F/4 =F/4 ^c/4 ^F/4 B,/4 ^d/4
^F/2 ^A,/2 ^G,/4 ^d/4 ^F/4 =F/4 ^c/4 ^F/4 ^G,/4 ^d/4 ^G/4 ^D/4 ^A/4
^G/4 ^G,/4 ^d/4 ^F/4 =F/4 ^c/4 ^F/4 ^G,/4 ^d/4 ^G/4 ^D/4 ^A/4 ^G/4
[^G^G,/4] ^d/4 ^F/4 =F/4 [^G/2^c/4] ^F/4 [^d/4^G,/4] [^d3/4z/4] ^G/4
^D/4 [^d/2^A/4] ^G/4 [^A3/4^F3/4^C3/4] B/4 ^A/2 [^G3/2^G,/4] ^d/4
^F/4 =F/4 ^c/4 ^F/4 ^G,/4 ^d/4 ^G/4 ^D/4 ^A/4 ^G/4 B,/4 ^d/4
[^d/2^F/4] ^D/4 [^f/2B/4] ^F/4 [^g^G,/4] ^d/4 ^G/4 ^D/4 [^f/2^d/4]
^G/4 [^d/2^D/2^F/2B/2] [=f/2^c/2^G/2=F/2] ^c/2 [^d/4^G,/4] [^d5/4z/4]
^F/4 =F/4 ^c/4 ^F/4 ^G,/4 ^d/4 ^G/4 ^D/4 ^A/4 ^G/4 ^G,/4 ^d/4 ^F/4
=F/4 ^c/4 ^F/4 ^G,/4 ^d/4 ^G/4 ^D/4 [^g/2^A/4] ^G/4 [^g^G,/4] ^d/4
^F/4 =F/4 [^g/2^G/4] ^A/4 [^fB,/4] ^d/4 ^F/4 ^D/4 [^d/2B/4] ^F/4
[^d/2^F/2B/2] ^c/2 B/2 [^A/2^C/4^F/4] ^F/4 [^F/4^C/4] ^F/4
[^D/4^F/2B/4] ^A/4 B/4 z/4 [^C^F^A] [^G/2^G,/4] ^d/4 [^G/2z/4] ^D/4
[^d/2B/4] ^F/4 [^c^F,/4] ^A/4 ^C/4 ^A,/4 [B/2^F/4] ^C/4 [^A/4z/8] B/8
^A/4 ^G/2 ^F/2 [^G3/2^G,/4] ^d/4 ^F/4 =F/4 ^c/4 ^F/4 ^G,/4 ^d/4 ^G/4
^D/4 ^A/4 ^G/4 ^G,/4 ^d/4 ^F/4 =F/4 ^c/4 ^F/4 ^G,/4 ^d/4 ^G/4 ^D/4
^A/4 ^G/4 [^G^G,/4] ^d/4 ^F/4 =F/4 [^G/2^c/4] ^F/4 [^d/4^G,/4]
[^d3/4z/4] ^G/4 ^D/4 [^d/2^A/4] ^G/4 [^A3/4^C3/4^F3/4] B/4 ^A/2
[^G3/2^G,/4] ^d/4 ^F/4 =F/4 ^c/4 ^F/4 ^G,/4 ^d/4 ^G/4 ^D/4 ^A/4 ^G/4
B,/4 ^d/4 [^d/2^F/4] ^D/4 [^f/2B/4] ^F/4 [^g^G,/4] ^d/4 ^G/4 ^D/4
[^f/2^d/4] ^G/4 [^d/2B/2^F/2^D/2] [=f/2=F/2^G/2^c/2] ^c/2 [^d/4^G,/4]
[^d5/4z/4] ^F/4 =F/4 ^c/4 ^F/4 ^G,/4 ^d/4 ^G/4 ^D/4 ^A/4 ^G/4 ^G,/4
^d/4 ^F/4 =F/4 ^c/4 ^F/4 ^G,/4 ^d/4 ^G/4 ^D/4 [^g/2^A/4] ^G/4
[^g^G,/4] ^d/4 ^F/4 =F/4 [^g/2^G/4] ^A/4 [^fB,/4] ^d/4 ^F/4 ^D/4
[^d/2B/4] ^F/4 [^d/2B/2^F/2] ^c/2 B/2 [^A/2^C/4^F/4] ^F/4 [^F/4^C/4]
^F/4 [B/4^F/2^D/4] ^A/4 B/4 z/4 [^C^F^A] [^G/2^G,/4] ^d/4 [^G/2z/4]
^D/4 [^d/2B/4] ^F/4 [^c^F,/4] ^A/4 ^C/4 ^A,/4 [B/2^F/4] ^C/4
[^A/4z/8] B/8 ^A/4 ^G/2 ^F/2 [^G3/2^G,/4] ^d/4 ^F/4 =F/4 ^c/4 ^F/4
^G,/4 ^d/4 ^G/4 ^D/4 ^A/4 ^G/4 ^G,/4 ^d/4 ^F/4 =F/4 ^c/4 ^F/4 ^G,/4
^d/4 ^G/4 ^D/4 ^A/4 ^G/4 ^G,/4 ^d/4 ^F/4 =F/4 ^c/4 ^F/4 ^C/4 ^d/4
^F/4 =F/4 ^c/4 ^F/4 B,/4 ^d/4 ^F/2 ^A,/2 ^G,3/2