Aiwendil's observations are apt, and I agree that it is somewhat puzzling. But the suggestion of three remains. The fact that he gives two numbers in the note (3 and 7) tells us that he hadn't decided on a specific amount yet. Modifying 'the host of Balrogs' to 'the Balrogs' allows for a reduction to seven, but not three, though this still doesn't rule out the possibility of Tolkien completely eliminating the death of Balrogs, aside from the named three, in every instance in the Silmarillion.
I never intended to say that a reduction to three was his plan, merely that the note cannot be dismissed simply because it conflicts with "completed" versions of the stories. I also wanted to point out that reducing the Balrogs to three, though it would conflict with every existing text, is not as completely insane as some make it seem. He simply would have had a lot of rewriting to do.
I think saying that you believe he intended a drastic reduction, but not seven, and most assuredly not three, is tantamount to completely disregarding the note. The specific numbers seven and three are given, and the suggestion of three does not damage the credibility of the note or the Professor's state of mind at the time.
Edit: And no, I don't believe that accepting the numbers given in the note are 'reading too much into it'.
[ January 24, 2002: Message edited by: obloquy ]
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