Pretty sure they did use prosthetics at first but didn't like the design or something so they painted CG over it.
This is precisely it. The practical version of Azog didn't translate as well on screen, so they remade him in CGI.
Also, nostalgia-vision is a pretty big factor in remembering Jurassic Park. The few CGI scenes that still work really well are because they use monodirectional lighting in dark environments to cover the limitations of the CGI capabilities at the time. Most of the "but it looks so fake" stuff comes from seeing characters with lots of scattered lighting effects in open environments.
Insofar as The Hobbit is concerned, most of their CGI looks near to flawless in a cinema (at least the ones that I've attended), but overall I think that most people aren't aware of CGI vs. Practical effects a large amount of the time, because there is SO MUCH that's done with hybridized work still.
Prometheus used a ton of practical and special effects that were blended together, and it's hard to tell when which is what.
I think that too often the anti-CGI VFX sentiment falls into the, "I can't recognize this as a practical effect that I'm familiar with, so it's clearly fake" which isn't the same as the CGI not looking photorealistic.
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