Lisa,
Yes, I really like this movie. It is very fairy-talish as you said, but the Buddha legends as written are a bit like that too. And I thought the death of the friend for the parents in Seattle added a kind of seriousness to it, trying to show the relevance of Buddhist teacings in real life, although maybe didn't **quite** get there.
Two actual Lamas are in the movie - the Astrologer/Lama who goes to the parents house and first tells them about their son is Sogyal Rinpoche, author of The Tibetan Book of Living and Dying, and towards the end when the Lama Norbu character passes away in meditation, Khyentse Rinpoche is shown - he is the author of What Makes You Not a Buddhist, and has directed two other interesting movies that are on
my Buddhist movie list. Both are very highly respected Lamas and teachers.
I have heard complaints about the ending, where all three candidates are declared tulkus of the same prior Lama, I guess that is actually considered very, very rare...