I still think he can be Bilbo. He may have opted out of playing the pope in that mini-series, but it said for "personal reasons", not "health reasons". The personal reasons could be health related of course, but they could just as easily not be.
He's been in a few films since LOTR, such as The Aviator, The Day after Tomorrow. He's also just finished filming The Lord of War, and has been cast in two more films so far for 2006. His career isn't over yet, so I wouldn't count him out yet either.
He may be 74, but a stunt double would be doing most of his scenes in The Hobbit anyway, and they could easily make him look like his does in FOTR again for the close-ups. I think it's perfectly plausible for him to still play Bilbo, as long as it goes into production within the next few years.
Look at Christopher Lee, his career is flourishing and he's a decade older than Ian Holm