Well, the stage production of
His Dark Materials, staged at the National Theatre in London, made very effective use of puppetry, costumes and staging technology (as well as the actors themselves) to produce what I thought was an excellent production. The same sort of thing might well be possible with
Lord of the Rings (although I am not sure that Hobbits as puppets would work
). However, even though it was presented as two 3 hour plays, large chunks of the
Dark Materials books were jettisoned for the stage production. Imagine how much of
LotR (the book) they will have to leave out for this proposed musical. Although, as it is a musical, I suppose that numerous pages of dialogue and exposition can be replaced with song.