You have separated the units of each nation from each other, have you not? Remembering starting units indeed helps. Nice to hear that your 7 year old already does that, I expect you to have great games when he or she gets older! Also if you do not have another set of combat dice, I recommended getting it.
Setup can be done during the first turns of the game. Basically both sides need only to draw their starting hand and the guide of the Fellowship must be determined. Then after allocating the eyes and rolling the dice you can continue setup when it is not your turn or when it is appropriate (i.e. when moving armies and advancing nations). Of course this method needs somewhat experienced players that can "see" the armies even when they are not on the board yet.
Thanks. Yes, actually my 7 year old son joined me for a 4 player game against two less experienced (than me) players. He did quite well.
I separate all units into their own bags and also remember how many go where. Also have two sets of combat dice.
Your second idea is a good idea. I hadn't though of setting it up while playing before.