There’s a story about this all over the internets today, but the best source is probably here at G4.
Basically, Del Toro was in the UK on a BBC radio show and he confirmed that Andy Serkis, Ian McKellen, and Hugo Weaving will reprise their LOTR roles in The Hobbit.
Well, it was expected but the confirmation is a huge relief.
The story also mentions that James McAvoy is the current favorite for Bilbo. That could work, he looks a bit like the other Hobbits and could pass for a relative of Frodo.
December 2011 can’t come soon enough.