For the record, I get 0 marks for reading comprehension and yes, you are all correct, Sauron did indeed have the Nine Rings in his possession!
See below for the sentence I apparently just skipped right over:
They were by far the most powerful servants, and the most suitable for such a mission, since they were entirely enslaved to their Nine Rings, which he himself now held
- The Hunt for the Ring,
Unfinished Tales
Your point about the dampening effect is really interesting,
Elenhir, as well as the thought about the plot hole points. This seems to make the most logical sense to me, actually. Aside from your reference to them passing invisible and being a terror to “all living things they passed near”, I also found Boromir’s report of the attack on Osgiliath at the Council of Elrond as an “eye-witness account” of the unclad wraiths:
A power was there that we have not felt before. Some said that it could be seen, like a great black horseman, a dark shadow under the moon.
- The Hunt for the Ring,
Unfinished Tales (footnote 8, Notes, Other Versions of the Story)
From a story/plot angle, it seems to make sense from the author’s POV to clad them in robes in order to make them more vulnerable (for lack of better word) and visible to our characters even though they are much more powerful and terrifying while invisible. From an in-story/in-world perspective, my understanding of re-reading this chapter is that Sauron intended to keep the wraiths (and more importantly, their mission) secret. Keeping them invisible was advantageous to that mission until he had a greater need of haste to find the Shire and recover the Ring, so they were clad:
The Lord of Morgul therefore led his companions over Anduin, unclad and unmounted, and invisible to eyes, and yet a terror to all living things that they passed near. (...) and so into the Wold, and rumour of darkness and a dread of men knew now what went before them. They reached the west-shores of Anduin a little north of Sarn Gebir, as they had trysted; and there received horses and raiment that were secretly ferried over the River.
- The Hunt for the Ring,
Unfinished Tales
(I think the nitty gritty details of this vary a bit depending on which version you read but overall it’s the same general idea.) Hmm. I’m still thinking about this and turning it over in my head...but does any of that make sense?
As for keeping them robed after their failed mission to the Shire, you could be right,
Boro, about preventing fear in his own forces...we know that Gorbag at least wasn’t too fond of them:
‘Grr! Those Nazgûl give me the creeps. And they skin the body off you as soon as look at you, and leave you all cold in the dark on the other side. But He likes ‘em; they’re His favourites nowadays, so it’s no use grumbling.’
- (Gorbag), The Choices of Master Samwise,
The Two Towers
Perhaps another element of keeping them visible is so they can fight and interact with the Seen world? Honestly, I have absolutely no idea of the mechanics or intricacies of the Seen vs. Unseen world in ME but if they are invisible, maybe they could not engage in warfare, while robed and armed, they could? I’m just making unsubstantiated guesses now but this comes back to
Fuin pointing out that Eowyn and Merry would not know where to stab the Witch-King if he were invisible.
Now I am wondering (entirely hypothetical) what would/could have happened had they found the Ring while invisible. Could they have even taken it? At Weathertop, the Witch-King stabbed Frodo and incapacitated him but how could he have done so if he were an insubstantial form? Maybe having a form is required to physically obtain the Ring? (Let me say, in my honest opinion, unexplained fantasy-magic-stuff is good enough for me as to how they could have done it and fulfilled their primary purpose for Sauron.)