I heard Jackson saying that he wasn't sure who would play Bilbo because Ian Holm was too old, which makes no sense to me, because Gandalf says in Fellowship that Bilbo hasn't aged a day. I don;t think anyone would be mad if they just had a dark haired Ian Holm in it, and anyone else would not seem right.

LOTR returning cast/cameos that could be worked in:

-John Rhys Davis as Gloin (Gimli's dad)
-Gollum
-Gandalf
-Elrond
-Arwen
-Legolas (in a cameo in the mirkwood sequence)

I also think Patrick stewart would be cool as Thorin the head dwarf.