I remember Christopher Lee saying that he'd be willing to do it if they shot in the UK, but that he doesn't want to fly all the way to New Zealand at his age.
I don't like the idea of the Frodo "framing" story, but that's because I feel The Hobbit as a film should be able to be viewed before The Lord of the Rings trilogy without spoiling anything. But that's just me. I can deal. And if I can't, I can fan edit later.
I'm curious exactly HOW Galadriel and Saruman will fit in. Tolkien DOES have a place for them in the wider tale, so it's not like it's mindless fanwank, but it's not in the book exactly.
This is why I don't have a problem with a lot of the LOTR actors that don't appear in the book The Hobbit being in the movie. It seems that most of their stuff will be stuff Jackson drew directly from Tolkien's other writings about stuff that happened during The Hobbit, so I'm willing to give PJ the benefit of the doubt.