this is so cool!

Yay! Ian McKellen is going to play Gandalf in The Hobbit and the other unnamed project they're working on. I can't imagine anyone else playing Gandalf.

According to studio New Line, the first film will be an adaptation of The Hobbit and the second will be an original story focusing on the 60 years between the book and the beginning of the Rings trilogy.

"As to how it's going to work over two films and what going to happen on screen, well Guillermo has not got down to working out the major details yet - I can tell you it's going to be amazing though," Sir Ian said.

Tolkien never published anything based on the time between The Hobbit and The Lord of the Rings, this could either turn out very cool or turn off the die-hards. I hope they involve Tolkien's family in the script, J.R.R.'s son Christopher is still alive and was very involved in his father's work, I hope they use him as a resource.

I was really hoping the second movie was going to be based on The Silmarillion, which is a prequel of sorts, to put it mildly, of The Hobbit and LOTRs, but to make the whole book into one movie would be a tall order...

IGN.com has come up with some ideas, here are a few:

Sauron Returns to Mordor
First off, the big villain from LOTR. He never actually shows up in the flesh in The Hobbit - he's merely mentioned as 'the Necromancer' – but he's certainly busy behind-the-scenes. The dark lord begins The Hobbit in hiding in his fortress of Dul Guldur, in Mirkwood Forrest, building up his strength and already searching for The One Ring.
Gandalf and the White Council eventually decide to attack the 'stronghold of evil', and the wily wizard ensures that the siege coincides with the mission to kill Smaug (the main story of The Hobbit), to stop Sauron and the dragon teaming up. He is driven from Dol Guldur and returns to Mordor to begin preparing for war. The Hobbit filmmakers could also show the villain beginning to corrupt white wizard Saruman, which lead to the dissolution of the White Council (an alliance of various wizards, including Gandalf, Galadriel and Saruman and IGN UK fave Radagast the Brown).

Aragorn Back-story
A Hobbit/LOTR bridge-film would also give the filmmakers the chance to tell Aragorn's extensive back-story. Around 50 years before the war of the ring began, he was told about his heritage (next in line to the throne of Gondor), and the be-stubbled hero began to rove middle-earth. It was at this time he served in the armies of both Rohan and Gondor, fighting several battles and generally acting as a kind of warrior trouble-shooter for the increasingly embattled kingdoms of men, as Sauron's armies grew.
During this period he also fell in love with Arwen and met Gandalf for the first time, where together they guarded The Shire, suspecting the One Ring may be there. All-in-all, Viggo Mortensen – who has expressed a desire to reprise his role as the character – would have plenty to do.

Incidentally, I kinda predicted this back in December:

New Line and Peter Jackson settled their lawsuit and have agreed to make The Hobbit and an apparent sequal. Im guessing they're going to split The Hobbit into two movies... I suppose they could make a movie about Gandalf and co. chasing out the Necromancer, aka Sauron, from Mirkwood which happens during the timeline of The Hobbit, but Tolkien didn't really give that much back-story. I'd much rather see something taken out of the Silmarillion :) More about Feanor and the rings would be cool. The return of the elves from Valinor, etc..