Having read the books and seen the films, I thought PJ did an excellent job of telling the story his way. He included the important parts that tell you about the story of the ring, and left out the bits that had no impact on the story he was trying to tell.
Bombadil didnt bring anything much to the books imo. And the Scouring of the Shire definitely feels like an afterthought in the book. Including that in the film would probably have added at least 20-30 minutes to the film, and would have been a total and utter anti-climax (much like it was in the book, imo).
If I have one gripe about the film, it is the way that Faramir is portrayed in the second film (The Two Towers). He comes across as being sly and greedy when he initially wants the ring. This was not how he was portrayed in the book at all, and I dont think changing it brought anything to the film at all.
One other dissapointing thing was the casting of Elijah Wood as Frodo. I didnt empathise with his character much at all, and think it could have been much better played.
Btw I heard a great quote from Stephen King. It's on the documentary on the making of 'Stand By Me' (the film adaptation of the Stephen King novella 'The Body). When asked what he thought about the movie compared to the book, he basically says they cant be compared. 'Books and movies are like apples and oranges. They both taste great, but they are completely different'
If you havent ever seen 'Stand by me', rent it and watch it. Amazing film