A One Ring.Net spy who was recently in the New York offices of New Line Cinema has reported that they clearly saw "The Hobbit" on the film schedule for 2007:

"I was in New Line's NY offices to discuss upcoming projects when I clearly saw something very intriguing on a year planner. 'The Hobbit' was clearly marked on what looked like July 2007.

I couldn't exactly take a moment to investigate the calendar with my audience in the room, but it definitely said 'The Hobbit'. Lets hope this is a Peter Jackson project!".

The rumour sounds far-fetched, not so much for the project but rather the date. A July 2007 start of production date however, sounds like a possibility and New Line is definitely interested in doing the "Lord of the Rings" prequel.