the definative balrog answer :)

[Ñólendil]

The Balrogs are known to be fallen Maiar. All of the Ainur used forms visible to us as clothes, clothes that were expressions of their personalities. So may Yavanna clothe herself as a great tree, crowned by the sun under heaven -- while Melkor's original form on Earth was a great mountain that wades in the water, ice-cloaked and crowned with smoke and fire.

The normal state of your typical Ainu was unclothed, as a naked spirit. Some became Incarnate by their own free will or by design (such as Melian and the Istari), some lost their ability to change shape or walk unclad (such as Melkor and Sauron). Sauron's ability as a 'shape-shifter' is marked, it appears he was better at changing his clothes than others, or had more to choose from by some art. I don't doubt that before the making of the Ring Sauron could have looked like a Balrog if he wished (or look like what a Balrog wished to looked like most of the time). He lossed his ability to change shape after he put so much of himself in the Ring, though he had already been rendered incapable of assuming a fair form after the destruction of Númenor.

CBG (nice avatar btw), 'Vala' means 'Power'.