Update #3 (with some slight spoilers)
A "remastered deluxe edition" of the 1978 Lord of the Rings
was released in April on both DVD and Blu-ray.*
The film uses a mixture of techniques, but most of the characters are either rotoscoped, or done with hi-con'd live-action footage (which sometimes works well, and sometimes not so much). The backgrounds are generally well rendered, and sometimes the effects are pretty decent (e.g. the encounter between Gandalf and Saruman), while other times they're amusingly poor (e.g. the Balrog which looks like a guy wearin a mask and some fake wings). Depending on your POV, those sort of gaffs could either spoil the film, or add to it's quaintness and charm.
The title is a tad misleading as well, since the film only covers about the first half of the trilogy, and leaves out most of the business in Mordor at the end. So either there was supposed to be a "sequel", or the production just ran short of cash. The 1980 Rankin/Bass Return of the King
sort of covered the rest though, and featured some ok voicework by John Huston, Roddy McDowall and others (as well as a couple catchy tunes).
*Edit: Looks like the DVD edition of the new LOTR could be Fullscreen (ie 4:3 format), while the BD is listed as 16:9 with 1.85 image aspect.