I have read from multiple sources, including interviews with the director, that they are going to make the trilogy into two movies. Either the IMDB hasn't caught up to this info or plans have changed again - I think it's a good idea. They are having to do some serious editing to make it all fit, and some of the important characters who aren't on many pages in the trilogy are getting their roles beefed up a bit.
Dwarfs and midgets would probably not make good Hobbits. Hobbits were described as being well-proportioned, just 3 to 3.5 feet tall and with hairy feet. And if they use real midgets, they may be forced to settle for someone who lacks the look or acting skills they desire for some very important characters, and people will not see them as a separate race of little people, they will see midgets. The Dwarves and Elves probably could not be played by humans who were not enhanced by some serious special effects, either. Orcs could probably be done with makeup and animatronics, though...I can see the budget, especially with all the large battles and surreal scenery and imagery. It will probably require just as many special effects shots as Phantom Menace, and Phantom Menace would have cost a LOT more if the special effects company didn't happen to be owned by George Lucas.
I think the movie will probably be excellent, and may actually do very well in the box office. The director has been quoted as saying it will almost certainly be a PG-13 for violence, they aren't going to be pulling any punches in the battle scenes, I expect some battles reminiscent of 'Braveheart'. They can probably get away with a lot of violence since the story will have practically no sex, nudity, or bad language.
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