Saruman's Pits

[Inziladun]

I would put my vote here on some sort of illusion put forth by Saruman.

I would agree that the making of weapons and war machines, and breeding of Orcs, must have been going on for quite a while before it came to Gandalf's notice. We don't know the time period between his last visit to Orthanc and the time he was imprisoned there, but it could have been decades.

Whatever Saruman was up to, he'd also concealed it from Radagast, whom he'd sent to lure Gandalf to Isengard. I don't think it beyond the power of Saruman to somehow affect the minds of those from whom he wished to hide his plans in such a way to make them fail to notice things. And then, when for instance, when Gandalf was in his power and trapped on Orthanc, to draw off the illusion like a curtain to impress or frighten.