The project will be based around the movie's story about a former Marine, played by Sam Worthington, "who persists in an alien world as an avatar, a human mind in an alien body." Peter Jackson's WETA digital is helping with the film's visuals, which will reportedly also serve to aid in development of the game. We'd love to see how the game's visuals compare to the film.
Avatar is being planned for a May 2009 release, giving Ubisoft just under two years to transform the MMO-like story into a game (which likely won't be a proper MMO).
[Update: Clarified the MMO aspect of the film.]