Over at BelowTheLine, they have an interview with Joe Letteri, the Visual Effects Supervisor on Avatar.   After experience creating an entirely computer generated, photorealistic character for Lord of the Rings and King Kong, he dove into Avatar and found that the aims were set even higher.

Though Weta craftspeople were familiar with the technology that Cameron required, there were definitely new directions in which the director wished to create his world in Avatar. Rather than create the computer-generated character material largely in postproduction, where, typically, CGI artists are placing digital characters into live-action plates, Cameron wanted to see his camera moves on the day he shot his motion-capture and facial-capture scenes. “So, the virtual stage was a live-action stage.” Letteri expounded. “The biggest difference is that Gollum was being put into a live-action plate whereas Zoe Saldana and Sam Worthington in Avatar were performing in a virtual world, and we were putting everything in digitally around them.”

via Joe Letteri on the Visual Effects of Avatar | Below the Line.