Actually i think it was on the blog comments that the rumor was discussed but then i could post it here (it's not that long).
Ben has already reported of Hosoda first arrival there when the studio was still working on Chihiro so he had to find staff by himself.
Then more info kicked in form of a rumor on 2chan that said, he had already finished the most part of the storyboard. He stopped in the middle of C part.
Animation production had started but animation director Katsuya Kondo was not happy at all with Hosoda's work. Apparently he did not like Hosoda's style not enough Ghibli-ish.
To displease Hosoda when layout stopped by his desk, he would not correct them.
in the end there was a dispute and Hosoda returned to Toei Animation.
Miyazaki finished Howl's and Hosoda directed Magical Doremie Dokkan #40...