I thought I had posted about Ian Holm in this thread but maybe I didn't. Visual effects aside, I think he's a little too old to play Bilbo in the new film. I did mention before that I thought someone from about 35 - 45 would be best.
I know they did a huge amount of work for Benjamin Button to make Pitt age through the movie, so it can be done. Going back to X3, I remember reading articles that talked about how expensive it was to de-age McKellen and Stewart and, at the time, it being said that for a scene it worked but they'd never be able to do a whole film like that. However, they did McKellen and Stewart 100% in the computer. There were no prosthetics or anything, they just shot them normally and digitally aged them.
Since there would be makeup and prosthetics for the Hobbit already, adding some digital touches to that to make Holm look younger wouldn't be as big of a deal as it would be if they were doing it all in the computer.
Still, while continuity is great, Bilbo was about 51 when he left the Shire in the Hobbit and he was 111 when we see him at his birthday in Fellowship. I personally think that a younger actor is needed for the film. I think it would just work better.
I look at it this way. In 1999, had the current technology been available, would you have preferred Alec Guinness to play Obi-Wan in the new trilogy? I wouldn't. I can't picture anyone else doing it now that Ewan McGregor took on the roll. Bilbo in The Hobbit is someone elses chance to do what McGregor did with Obi-Wan in the prequel trilogy.