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Indeed, and that's why one was already made.

surprisingly well-made

Sounds like a synonym for mediocre but hey it's free. I have yet to watch TFE (the fine episode) because my torrent download rate is surprisingly slow. But reading through the comments at the VODO download page, assuming they aren't anonymous astroturfers, I get the feeling that it's actually good enough for broadcast TV. They'd probably be right if by such quality you mean either Paranormal Activity or the Blair Witch Project, a threshold you can easily reach with a well-written script, a good director and a dedicated cast.

Sadly the better free beer movies I've watched appear to be fan-made movies (or movies produced without explicit permission from materials copyrighted by other people), e.g. The Hunt for Gollum.

I have to agree. It has that home movie feel popularized by the Blair Witch Project. Take the dialog. It "tries" to sound too much like real life. If I want real life dialog, I go to the nearest Starbucks to eavesdrop on the chitchat. Unless viewers start preferring "Blair Witch" type movies over a fairly well-scripted big budget movie like Pandora, no, this won't spell the end of Network TV as we know it. A better bet would be something like the Hunt for Gollum, which reaches or nearly reaches Sundance Film Festival quality. Maybe it helps that it's based off a critically successful literary franchise. But hey, if finding an inspiration is the problem, there are lots of "proto" sci-fi from the late 19th and early 20th century that only need to be updated with modern techno-babble (e.g. Jekyll & Hyde, Frankenstein, Jules Verne's adventure stories).

The fan spends four years in production. The film is screened in New York and L.A.

It never occurs to him at any point along the way to ask Nintendo for their permission and support. It comes as a surprise when the rights holder pulls the plug.

There is a way to get it right:

The Hunt for Gollum
   

Although, The Hunt for Gollum cost about five thousand bucks and it was 38 minutes long. I realize even that isn't quite the same as a full length feature film for three times as much, but we're clearly getting there.

The Hunt for Gollum team went to massive excess to make sure their film was completely profitless without any accounting shenanigans. They also sought the go ahead from Tolkein Enterprises which controls many of the rights to LotR.

Excellent quality for a fan film.

The trailers for The Hunt for Gollum http://www.thehuntforgollum.com/ look good - a non-profit film where none of the cast or crew were paid.

Yeah, and then users created The Hunt For Gollum for 3000 pounds; http://www.thehuntforgollum.com/

I'm still able to get to http://www.thehuntforgollum.com/ Some more: http://www.youtube.com/watch?v=gffXrghlrqo http://www.youtube.com/watch?v=3n1F4DnvnX4