Lamport never recommended how one should pronounce LaTeX, but a lot of people pronounce it 'Lay TeX' or perhaps 'Lah TeX' (with TeX pronounced as the program itself; see the rules for TeX). It is definitely not to be pronounced in the same way as the rubber-tree gum.
The 'epsilon' in 'LaTeX2e' is supposed to be suggestive of a small improvement over the old LaTeX 2.09. Nevertheless, most people pronounce the name as 'LaTeX-two-ee'.