Last I heard, which was about 2 years ago, Jackson really wanted to do it, but had other projects lined up, namely King Kong. In addition to this, there were some legal issues, because 2 different companies had rights to it. IIRC, New Line had production rights, and another company (MGM/UA) had distribution rights. I am not sure how accurate this is though.
here is a website about it that is probably quite old.
http://www.thehobbitfilm.com/