Husband-and-wife team Dan and Chris Hennah sound more like ghost-story tellers than set designers on ''The Return of the King,'' the third ''Lord of the Rings'' installment. ''A great gust of wind, which was the breath of the Army of the Dead, came down and frightened the horses and the three partners of the fellowship,'' says Dan of this scene where the trio sets foot on the Paths of the Dead. ''They're told that anyone who steps on the Paths dies. It's a pretty spooky place.'' Sure, once the Hennahs put in a few dozen cypress trees, stripped them of leaves, and took a blowtorch to the branches ''to give them a charred look,'' explains Dan, who has often constructed trees of bark-covered rubber and steel. They and their crew of 430 also filled 150 sacks with leaves and twigs to carpet the ground and add to the feel of decay. The final detail was a rock wall made to look like the windswept cliffs on the southern coast of New Zealand's capital, Wellington. But the Hennahs are proudest of those trees. Says Chris, ''I often have to go up and touch the back to see if it's rubber or real.''