I'm in the Hoffman bandwagon as well. I'm one of the few who can say that he was one of my favorite actors years before he won the Oscar, and was a relatively obscure character. Actually, to be honest, I still haven't seen Capote. The roles I remember Hoffman are the small parts he played in The Big Lebowski, Scent of a Woman, Magnolia, Red Dragon, the 25th Hour and many others. The only movie I've seen that he's had the lead in is Love Liza, but it was an incredible performance.
However, I'm not getting my hopes up about this. While I know he's certainly not a pretentious prick that would turn down a part because it's a comic-based movie, he is one of the busier actors in Hollywood these days. Hoskins is probably a more realistic choice. I love Pesci as much as the next guy, but I just can't see him as Oswald Cobblepot.
As for how the Penguin should actually be in the film, I for one can't stand the idea of him being a British arms dealer like everyone else seems to be talking about. I just hate it. I didn't mind the changes they made in BB to characters like R'as and Scarecrow, but for Oswald, I'd much rather have a straight-up comic adaptation; an eccentric, very vain mob-boss who runs his schemes out of the Iceberg Lounge. And that's one thing I would love to see in TDK; a snazzy party at the Iceberg Lounge attended by all the elite of Gotham's underworld crashed by the Batman, where Bats then procedes to mop of the floor with Oswald's thugs and scare the living ***** out of him and forces him to spill information about other bad guys. It's a classic Batman/Penguin confrontation that's happened countless times in the comics and the later version of TAS, and I would LOVE to see it happen on screen with Bale interrogating the likes of Hoffman or Hoskins the way he did to Flass in the first movie.