I love the "Toy Story" type animation (for those of you with kids, find a "Veggie Tales" video - great animation, characters, & writing - stuff adults will enjoy with the kids), but it doesn't in my mind have the right 'feel' for Middle Earth. I get a plastic sort of impression from everything. However, as this type of animation improves & gets more complex, I think it may evolve into something that would work.

Having just recently watched the miniseries "Merlin", I think the current live-action with special effects and carefully crafted computer animations is just about up to the challenge. Ents may be the biggest challenge.

I think the film series would need unknown actors, except you just have to have James Earl Ray show up somewhere - he's in most everything else! I think he'd make a great Treebeard.