The fantasy alphabet....

... starts with Z. Z is at the beginning of all the most interestingly exotic, or just exotic, names:

Zardoz
Zenda
Zaphod Beeblebrox III

Even more exotic is X. If you want to make a name evoke far-off, mysterious lands, and magical rites, and quaint forgotten lore, you should start it with an X.

Xena
Xenu
Xiombarg

Other important letters in the fantasy alphabet include V (Lord Vader, Vadhagh), J, Q, and K, but who could suspect little old M? And yet M is very important. It begins the word... MURDER!

Mordor
Mordak

S with its obvious sibilance could hardly be passed over:

Sauron
Saruman
Shelob

Considering all those names come from Tolkien, you begin to suspect the querulous old linguist had something against sibilance.

And of course these letters don't have to appear at the beginning of names to work: sometimes their mere presence is enough to evoke the requisite emotions and ideas. Consider the Z in Tarzan or Godzilla, or the saucy little X dangling right at the end of Zaphod Beeblebrox III.

There are also a lot of units larger than a single letter that are important in fantasy names; some of the better authors could be said to think in syllables rather than letters. Some of Mervyn Peake's names are excellent:

Titus Groan
Gormenghast
Steerpike
Sepulchrave

C S Lewis, on the other hand, seems to have preferred to give many of his names a musical twist, ending many with what I suppose is a Latin ending:

Rilian
Caspian
Drillian
Reepicheep

Many fantasy names are just normal names with an extra syllable tagged on, or a spelling changed. It is perhaps meant to point to the fact that fantasy novels are set in other lands and times where people speak a different language, though it's somewhat undercut by the fact that the novel will invariably be told entirely in English anyway:

Hari Seldon
Bilbo Baggins
Frodo Baggins

Mostly Tolkien seems to have given up on the idea of making fancy names, if we can take names like 'Sam' or 'Tom Bombadil' as examples, though I do like 'Belladonna Took'. It's pretty out there. It's not really made up, but it seems to yank together two seemingly disparate terms, just like Douglas Adams was fond of doing with 'Ford Prefect', say - or who could forget his 'Eccentrica Gallumbitis, the Triple Breasted Whore of Eroticon Six?'

Once I tossed up the idea of writing a fantasy novel composed entirely of ordinary names: Jack, Jillian, Sam - or even better, where all the characters have only got one name between them - John Smith, ferocious dragon, eater of maidens; John Smith, glamorous enchantress, who entrapped the famed Mage, John Smith, in a nightmare; John Smith, cheeky bard, who roams the lands telling of the deeds of John, John, John, John, the famous four Smiths (one of whom happened to be a blacksmith)...

So why don't you all go and make up a name now, y'hear?