In the chapter "Of Beren and Luthien", we're told that, when Morgoth discovered Luthien in Angband, he
"conceived in his thought an evil lust, and a design more dark than any that had yet come into his heart since he fled from Valinor."
Now, what could be worse than what he has done up to this point, starting a war in which probably hundreds of Elves have already died or been tortured? In the other versions Tolkien isn't any more specific:
"Nay," saith Melko, "such things are little to my mind; but as thou hast come thus far to dance, dance, and after we will see," and with that he leered horribly, for his dark mind pondered some evil.- Book of Lost Tales vol.2
Then Morgoth laughed, but he was moved with suspicion, and said that her accursed race would get no soft words or favour in Angband. What could she do to give him pleasure, and save herself from the lowest dungeons? He reached out his mighty brazen hand but she shrank away. He is angry but she offers to dance.- Commentary to the Lay of Leithian (The Lays of Beleriand)
And she beguiled Morgoth, even as his heart plotted foul evil within him; and she danced before him,-The Quenta (Shaping of Middle Earth)
Seems to me that Tolkien never came up with anything concrete about the punishment. Some people think Morgoth planned to rape her, though I find that idea quite weird. Well, thoughts?