I was reading these tidbits on various gossip sites yesterday. From an interview with Michael Caine:

"I was with [a Warner Bros.] executive and I said, ‘Are we going to make another one?’ They said yeah. I said, ‘How the hell are we going to top Heath? And he says ‘I’ll tell you how you top Heath — Johnny Depp as The Riddler and Philip Seymour Hoffman as The Penguin.’ I said, ‘S–t, they’ve done it again!’”
Splash Page ‘DARK KNIGHT’ EXCLUSIVE: Michael Caine Says Johnny Depp Is The Riddler, Philip Seymour Hoffman Is The Penguin

But then, hours later, Hoffman denied it, saying:

“No one has talked to me about it ever — never,” replied Hoffman. “It happened, like, five years ago, too. It was a rumor back then and it’s still a rumor. [laughs] It’s just in the press. It’s funny.”

To further cement this issue, Hoffman added that he’d never met Nolan (”Maybe I did or met him in passing?”), and that his interest in comic book movies is purely on a fan level, and he intended to keep it that way.

“I’m such a fan of those movies,” related Hoffman. “Comic book movies in general I look forward to — I am a real cheerleader for them. I want them to do well because those are terrific stories. As a kid I was a big comic book collector. What [Nolan]’s doing is taking it in a whole other exciting great place. I’m more a fan, so the interest of being in it isn’t that great. It’s more the interest in wanting to see the next one. It’s probably better that way.”

When further pressed for his level of interest if Warner Bros. approached him about the role, Hoffman said, “I don’t know. I think I’m more interested in seeing someone else do it. I don’t know if I’d be a good Penguin to be quite honest. [laughs]”
Splash Page ‘Dark Knight’ Update: Philip Seymour Hoffman Responds To Casting Rumor, ‘I Don’t Know If I’d Be A Good Penguin’