In this case, I've taken a Gordon Browne illustration from Dandelion Clocks and Other Tales from 1887. The very first story in the book is "Dandelion Clocks" and features the character Peter Paul, sitting on the fence, wearing wooden shoes and blowing at a dandelion (below on left). It struck me how much it looked like a Hobbit (ahem... "halfling") so I decided to do some additional photo elements and retouch them into the illustration (below on right; I put in the feet, the pipe, and added some lines to the face to give it some "age"). If I were to use an illustration like this, my intention would be to credit the illustration solely to Gordon Browne. And if other retouched illustrations were included in the same document/book/etc., I might put a credit line for myself for "Photo editing and retouching" (or something similar).
The question is, do these kind of edits denigrate the original intention of the artist? Or, since the artist was originally hired to produce the work for someone anyway, does it promote the artist's legacy fairly when the work may have been otherwise lost or forgotten?