Bear in mind, this most likely means not only no WETA, but no McKellen or Serkis, either. I predict an unwatchably awful Hobbit.
EDIT: Perhaps WETA will still be involved. From TORn:
"The severing of ties between PJ and New Line did not mean Weta was automatically barred from doing The Hobbit, according to Weta chief Richard Taylor."
http://www.theonering.net/index.shtml