Definitely agree that you'd be hard pressed to find anyone willing to invest large sums of cash and stake their name in such a movie. Perhaps Zombie's suggestion of making it similar in terms of feel to Seven would be a way around the reservations people have with the children. It definitely has the potential to be a truly horrifying movie instead of the cheese fest that the series turned in to after the first one.

I'm envisioning an ending where he's first able to enter an Elm Street kid's dream and gets to work on his revenge as a way of tying it into the first film.