The problem with the movie was not the location but the coloring and the decision not to include the early portion of the Fellowship. Tolkien's best work was done in the 30's. Some day, someone will make a set of movies that ignores how the book was divided into three parts and uses logical ending places. The first movie will end when Frodo wakes in Rivendale and should incorporate some backdrop from the Second Age. The second, as the survivors prepare to leave the Misty Mountains after the elegy for Gandalf. The third will be more complicated as they will have to follow both story lines in the second half of the movie, but the end should come after the Three Hunters meet the men of Rohan. That way, the next movie will follow the Ents, the Rohan segment, and Frodo stabbing by Shelob. The last movie will wrap it up.
Getting the colors right, greens, golds, and blues will be extremely important, especially the Shire, and in Lothlorien. They have to be vivid and not washed out.