There is plenty of room to double the size of Fantasy Land in MK. Where they built that Winnie the Pooh Playland - behind that - is where 20,000 Leagues used to be. Look at it from Google Maps satellite view and you will see a huge parcel of unsued land between that and the railroad. They could put a dark ride, coaster, table service restaurant and souvenir shop in that much space.
Personally, I'd duplicate Ariel's Mermaid Lagoon from Tokyo DisneySea. Place a new TS called The Lookingglass Cafe - a character meal with Alice, the Mad Hatter, Cheshire Cat, etc. The possibilities are endless. The money....
It's not as simple as all of that. Part of that area is fall out for the fireworks, they are not going to build there due to the logistics of it. Part of it is also serves specific purposes backstage. Let's just say that there is not as much room to expand back there as people believe there is. The area that was 20k has been revitalized, the majority of it is Pooh's Playground. They just built that, it won't be going away any time soon. The other issue is that a certain percentage of the land has to be left undeveloped for conservation purposes. I don't know for sure, but it wouldn't surprise me if there is supposed to be some sort of buffer around the parks. Yes, it would be great for MK to get new rides, just don't hold your breath for them to come to Fantasyland any time soon because expansion would be a logistical nightmare.
I also doubt they are going to replace anything:
1.) It's a Small World is a classic and just underwent a major rehab in 2004-2005
2.) Peter Pan just got a minor rehab in 2006 and is due for a major pretty soon if I recall correctly.
3.) Philharmagic is fairly new (2003) and is one of the most popular rides in the resort
4.) Snow White had a major rehab in 2004
5.) Dumbo is a classic, it's not going anyway
6.) Pooh is popular and is also fairly new
7.) Teacups are another classic and people would be upset to see them go
The only two rides I could see on the chopping block are Pan and Snow. Although to most people the rehab at Snow looks minor, it was pretty sizable. Aside from neatening up the ride itself, they split the panel into two and moved it to the other side of the tracks. They spent quite a bit of money doing that. Not to mention Snow is directly in the fall out zone. It would be stupid to try to put a new ride there because they wouldn't be able to control the crowd for Wishes without shutting it down, which would tick people off royally. The crowd control for the fireworks would be even more of a nightmare than it is now.
Pan is a classic, it recently underwent a fairly sizable rehab. If the rumors are true, it will be getting an even larger rehab soon. I don't know if you've noticed, but they are slowly rehabbing all the classics, if Pan hasn't had it already, it is due. Again, they wouldn't rehab it if they are going to get rid of it. The way the land is set up, there is simply no where to put anything at the moment. (