Eusebius of Caesarea is one of the first to mention Prester John, the king of a mythical Eldorado in the East. He did not start off that way. Eusebius was merely distinguishing him from John the Apostle. The legend of a king in the Orient with all the wealth and refinement of the East except that he was one of 'our guys' became current in the Middle Ages, especially during the Crusades. The Crusaders were hoping this king would come with all his splendor and huge armies to rescue the crusade from disaster.
John Mandeville wrote about the kingdom of Prester John in his Travels. Marco Polo also wrote about who he thought Prester John might be. Prester John was supposed to be descended from one of the three Magi and carried an emerald scepter. Prester John is implicated in the search for the grail in Wolfram von Eschenbach's Parzival by being John, the son of Fierefiz and Repanse de Schoye. The introduction to my copy of Parzival avoids mentioning Prester John at all even though the green stone of the grail (lapis exiliis, a stone that has fallen from Heaven), seems to be mirrored in Prester John's emerald scepter. I have read somewhere, forgetting where, that in gnostic writings the emerald was a stone that fell from Lucifer's (who was the true King of the World) crown when he fought with the usurping Demiurge (who we now erroneously worship as God). This is strange territory for Tolkien to be venturing in.
The letter from Prester John that was circulating around in the Middle Ages, claimed that among his treasures which included the Fountain of Youth, was a mirror which allowed the king to see everything that went on in his kingdom. The question now would be, since this would appear to be outside of Tolkien's normal area of study, is how would he even be aware of this mirror? From Charles Williams of course. Williams, who was a member of the Inklings and one of Tolkien's friends, wrote a book called War in Heaven in which Prester John is a protector of the Holy Grail. Williams was a Rosicrucian and was good friends with Evelyn Underhill, who was a member of the Golden Dawn. One has to wonder what this means for Frodo's alias. However, I am going to state that I think the mirror, or mirrors, of Prester John is the inspiration for the palantir. Williams' book was published in 1930, early enough to have influenced Tolkien, and the Medieval legend has been around even longer than that.
The only thing bothering me is that spotting all these little details is beginning to spoil my enjoyment of the novel.