The queue building is supposedly staying. Doubtful it's going to be a castle anymore, as that doesn't really fit into the Forbidden Forest mythology. In fact, it remaining is probably the biggest indication that this is going to be an indoor coaster. All they really need to do is put a gate to the Forbidden Forest right about where the stage currently sits - the entrance to the Forbidden Forest MUST be from Hogwarts and not Hogsmeade, and it especially must NOT be where Dragon Challenge's entrance was - then have a path through some trees which ends at the Shrieking Shack, which would be the entrance to the indoor queue. Done right and nobody would ever see the castle behind it. This gate entrance actually exists in the soundstage attraction they have over in Britain, so it's obviously something JK Rowling has approved.
I think the ride building will be shoved as far back into the plot as possible. This way they can build new shops across from the Owl Post building, including a ride-exit shop. You know shops are the main reason they build anything here! They're going to need something to hide the massive ride building and this area isn't deep enough to hide it with an actual forest. New buildings would also allow them to divert the Hogwarts Express queue to begin and end in Hogsmeade proper, if they really wanted to get immersive. They could even make that ride empty into a gift shop! YOU get a gift shop! And YOU get a gift shop! EVERYBODY gets a gift shop!
I really hope they end up doing something like this. The current location of that stage is moronic, right in the middle of what may be the park's busiest intersection. They could move the stage over to the back alley in Hogsmeade - it doesn't really need to be in Hogwarts like the Forbidden Forest does. In fact, a perfect location would be the former Dragon Challenge entrance. It fronts a huge, underused square that would be perfect for a crowd to watch these small, underdeveloped shows!