'How about a little fire, Scarecrow!'
From what I can gather they're going to follow the book in terms of setting and everything but they're gonna elaborate on it all, much like what's being done with the upcoming Prince Caspian. Developing the characters would be a good idea for a start. And I think the odd huge battle scene could be done too. It's definitely worth doing.
There should be absolutely no schmaltz involved. And just imagine how amazing they could make the land of Oz look now, the Emerald City in particular. The Cowardly Lion would likely be a CGI character. After all, he isn't meant to look like a guy in a suit, he's a full-sized lion in the book I think. If Aslan can be done like this in Narnia then there should be no problem.
Who would play the characters though? An unknown for Dorothy, please. I bet they would have had LinRABay Lohan in the role a few years ago! Someone like Jim Carrey would be good for the Scarecrow, though perhaps they would cast younger. Adam Sandler might work as the Tin man or Lion. I know I'm thinking of comedy actors but that might be the way to go. Morgan Freeman as the Wizard!