For full disclosure, let me state right off the bat that I am a huge Lord of the Rings fan. I not only love but cherish the previous Tolkien trilogy of movies, and by significant margin would likely consider them my favorite movies of all time. That said, I had some doubts about The Hobbit. While I was excited to see it, I didn't like that it's been broken into three films, I thought the Dwarves looked slapstick in the commercials, I thought the movie sounded too long for 1 of 3 (for one book!), and I just simply didn't think it would live up to the Lord of the Rings Trilogy.
I am very, very, very glad to say I was wrong. The Hobbit is just simply a fantastic fantasy movie by any account, a wonderful adventure and drama, an action-packed thrill ride with magic and creatures from the wildest parts of art and imagination, and is more than a worthy pre-pre-prequel to the Lord of the Rings. It may even be one of the best of the four movies (though that's hard to judge based on only one viewing).
Martin Freeman is beyond incredible as Billbo. He's not trying to be Ian Holm or Elijah Wood, he's his own Billbo, and is believable, funny, serious and fantastic to watch. Ian McKellen is more serious, harder-edged (as Gandalf would have been at the time in the story) and simply perfect again as the wizard. The dwarves are also very good, even if some of the characters are bit roles (with 13 dwarves, obviously each of them is not fleshed out in full and thank goodness they are not).
The special effects are a few steps beyond what they were in the LOTR trilogy. Every texture is notably more real, more tactile, and the animation is so smooth, believable and seamless that you very much cannot tell when you are seeing people in costumes vs models vs CG.
And to be fair and honest, I think this movie _may_ hold up as well or better than the LOTR trilogy. After watching the LOTR trilogy a million plus times, there are parts that do start to drag. But only after a million watchings.... such as the long and ardous travels of Frodo, Sam and Gollum in Two Towers. Or the fact that "second breakfast" is charming and funny only the first 20 or so times you see it. The Hobbit...doesn't really have much of that. The first half hour to an hour has some humor that may get old later, but that's it. The entire movie is an incredible adventure with stirring dialogue, wonderful creatures and characters, swords and sorcery, and spectacular battle scenes.
It's just simply incredible. I couldn't have been more impressed.
Pros well paced, great story, great actors, great special effects, wonderful music, great action scenes