Hi,
LMT called as Locally Managed Tablespace is a new feature introduced from Oracle 8i.Basically prior to 8i the only tablespace that you can create was Dictionary managed which meant that any allocation or de-allocation of extents will be tracked by the data dictionary.In 8i the LMT will track the extent allocation and de-allocation by itself.Which means that in every datafile of the LMT tablespace ,there is a bitmap which keeps information about the extents in that datafile.So whenever an extent is allocated or de-allocated ,the bit in the bitmap will reflect the changes,so due to this the recursive calls on the data-dictionary is reduced.Also since LMT keeps track of the extents,the coalesing is done automatically.
Now regarding your question that your indexes and data is in LMT,indexes always have a high degree of fragmentation when your data is frequently deleted or updated or inserted in the table.So accordingly indexes will also take the changes.Whenever there are high deletions on the tables,the indexes will also have the effect of deletions because of which they become fragmented.
Eventhough u keep the indexes in the dictionary managed or LMT,the fragmentation of indexes will happen ,so you must rebuild your indexes when it becomes more fragmented.The kind of tablespace use to house the indexes will have a very little impact on the performance.

Regards,
Rohit Nirkhe,Oracle/Apps DBA,OCP 8i
[email protected]