Fan theory (which I agree with) is that the films will be bookended by scenes with Ian Holm as older Bilbo reading "There and Back Again" to young Frodo.
It's going to be a bit more than that, I think. The casting of Orlando Bloom and numerous other LOTR-only characters, coupled with the confirmed casting of Holm (which I only just found out about) indicates to me the whole film is going to be a flashback, probably set within the events of LOTR during one of the Rivendell visits; probably a later one as there's no sign of Arwen an Aragorn.
Pretty dumb, but hey they have to find some way to justify padding the thing to two movies.
What annoys me is Jackson made such an effort to be true to the LOTR books (Tom Bombadil notwithstanding) yet here he is seriously farting about with, frankly, a book that's even more beloved than LOTR. Rankin and Bass made a fine animated film of the thing, complete with musical numbers, in 90 minutes and it covered the complete story. I'm fine with Jackson making The Hobbit but I'm not interested in it becoming Lord of the Rings Book 5 and 6.