You're right, JBI, I should have said that I personally don't think Jackson did a good job with King Kong. But King Kong also proved to studios that Jackson is not as reliably bankable as they wanted him to be. (I don't think anybody could be, actually, though I am not of the view that all in Hollywood are souless moneygrubbers.) That doesn't mean that they aren't lining up to make movies with him, but it does mean they don't regard him as a guaranteed money tree no more. He's replaceable.
New Line has the rights to the LOTR franchise until 2008, and they understandably want to make the Hobbit before then. They've probably sunk a good bit of money into it already for pre-development -- some of it paid to Jackson. Embroiled in a revenue battle with Jackson on Fellowship (and I'm guessing New Line was trying to shaft him,) and with the fallout that Jackson won't/can't make the Hobbit until the dispute is resolved, not to mention he already has a schedule of other projects that would make a normal person blanche, then the logical move was to get another director. And by doing so, possibly galvanize Jackson to agree to do a deal to direct the Hobbit sooner, or at least move the project forward.
Jackson, for his part, is not just screaming about money, but that doesn't mean he isn't using his leverage out of this either. The likelihood is that they'll either: 1) work out a deal for Jackson to direct, with him promising to put Hobbit ahead of other projects; 2) Jackson will adroitly stall production, the rights revert, and we get a Hobbit movie directed by Jackson somewhere in the 2010-2012 time period, if he doesn't lose interest or gets too committed to other projects he's doing; 3) they work out a deal with a new director and Jackson is executive producer, which is the one I'm betting on.
These drama diva matches go on all the time in Hollywood. I remember when Mike Meyers and Ron Howard were getting down and dirty and then six months later they were buddies again. Everybody involved loves the Hobbit and nobody wants to bury it, much, so it will get worked out one way or another. And whether Jackson or somebody else directs it, it will be a lovely movie, because the story itself is a great one.
And of course McKellan and Serkis will be involved, unless McKellan has a health crisis, which is more likely to happen if shooting doesn't begin until 2009 or later. It's not fun that the parents are fighting and the kids have to wait for Christmas, but it can't be helped.