Getting closer to reality is a common thread in the arts. As soon as man had a way to move from one-color cave paintings to using colors, he started to use them.
This is the artistic expression that Peter Jackson is going for.
In one of the video blogs he said: "The result looks like where the screen was, there is now a hole in the wall, and beyond that is reality".
Imagine, instead of looking a film of Bilbo, you're transported right there into Middle-earth and it looks absolutely real. Wouldn't that be great? I'm very much looking forward to that experience.