Your example isn't particularly good for your question because ToList() isn't really in the same class of extension methods as the other ones supporting LINQ. The ToList() extension method is a conversion operation, not a query operation. The real values in LINQ are deferred execution of a composite query built by combining several LINQ query operations and improved readability. In LINQ2SQL you also get the advantage of constructing arbitrary queries that get pushed to the DB server for actual execution, taking advantage of optimizations that the DB may have in place to improve performance.
In general, I would expect that the question of performance largely comes down to how well you construct the actual queries and has a lot more to do with how well the programmer knows the tools and data than how well the tool is implemented. In your case, it makes no sense to construct a temporary list just to be able to invoke the convenience ForEach
method on it if all you care about is performance. You'd be better off simply iterating over the enumeration you already have (as you suspect). LINQ won't stop a programmer from writing bad code, though it may disguise bad code for the person who doesn't understand how LINQ works.
It's always the case that you can construct an equivalent program not using LINQ for any program using LINQ. It may be that you can actually improve on the performance. I would submit, though, that LINQ makes it much easier to write readable code than non-LINQ solutions. By that, I mean more compact and understandable. It also makes it easier to write composable code, which when executed in a deferred manner performs better than, non-LINQ compositions. By breaking the code into composable parts, you simplify it and improve understandability.
I think the trick here is to really understand where LINQ makes sense rather than treat it as a shiny, new tool that you need to now use for every problem you have. The nice part of this shiny, new tool, though, is that it really does come in handy in a lot of situations.