Guillermo Del Toro has left the two-film adaptation of J.R.R. Tolkien's The Hobbit due to the lengthy delays on the project. The films were supposed to start shooting several months ago for release in December 2012 and 2013 but the ongoing sale of MGM (who hold the rights to The Hobbit and were producing the films in cooperation with New Line, who financed the Lord of the Rings trilogy) has held up the project indefinitely, although producer Peter Jackson continues to hope shooting will start before the end of the year.
Del Toro had committed to the films as a three-year project before shooting his next solo movie. Previous delays had already stretched this out and with further delays likely to extend this to six years, Del Toro decided he couldn't delay his other commitments (including Hellboy 3 and a potential adaptation of Dan Simmons' Drood) further. However, Del Toro will remain in New Zealand for several more months to help with the script rewrites and addition pre-production requirements (I suspect strongly he will receive a production credit on the film for these reasons). Peter Jackson and New Line are already lining up potential replacements.
The obvious solution - that Jackson himself direct - appears to be out of the question as Jackson is booked to direct the second Tintin film either next year or in early 2012, during the proposed shooting schedule of The Hobbit.
Update: Jackson has hinted that he might consider directing if no other director can be found. He has also suggested that The Hobbit's importance to the Wellington area's economy means that he will do everything possible to stop it from being cancelled or put on hold. However, Jackson has at least two other films lined up during the filming period (presumably including the second Tintin movie and one other, unannounced project) and he is uncertain whether he would be able to get out of his contract to direct The Hobbit. Jackson's manager suggests that the possibility of Jackson directing is slight-to-nonexistent due to these commitments.
Possible replacements: Sam Raimi's name was flung around before it became clear that he was working on Spider-Man 4. With SM4 cancelled, Raimi could be back in the frame, despite him carrying out work on the proposed World of WarCraft movie. Personally, I don't think Raimi has made a great film since his Evil Dead days, with only Spider-Man 2 being watchably entertaining, so I'd definitely want him not to be involved.
The other, altogether more positive, possibility is Neill Blomkamp, who owes Jackson a favour for his production credits on District 9. Blomkamp is developing a new film and had been linked with Dune before Paramount decided to fast-track the latter with a different production team. Depending on Blomkamp's schedule, he may be a viable choice for The Hobbit.