Having seen Martin Freeman in various other film and televised productions in the past, I never doubted Peter Jackson's conviction that he would be the perfect Bilbo. Freeman not only proved me right, but he exceeded my expectations. His portrayal was pitch-perfect: humble and homely, with the right amount of stubbornness, and a great deal of heart.
For me, the best part of the movie was the famous "Riddles in the Dark" scene. Why did it work so well? Because it was purely dialogue (lifted almost exactly from the book) and great acting from Freeman and Andy Serkis. It was very raw: we were literally seeing the actors' interpretation of the original scene, and it was captivating. The chemistry between them was excellent and made for a lot of comedy, and the moment where Bilbo spares Gollum's life reduced me to tears.
The rest of the movie did not work as effectively. There was an excessive amount of special effects and extensive battle sequences which, quite frankly, didn't need to be there in terms of story. I liked the inclusion of Radagast - beautifully played by Sylvester McCoy - and the cameos from Elijah Wood, Ian Holm, Cate Blanchett and Christopher Lee. However, it felt very much geared towards those who had seen and loved Peter Jackson's adaptation of The Lord of the Rings. If you have only read the novels, or had no former acquaintance with Tolkien at all, I imagine much of this would be lost on you.
I also found Radagast's rabbit-sled a little unusual (imaginative and fun, but out-of-place in this story), as well as Galadriel disappearing into thin air. It was just odd.
Overall, I'd say this was a very good movie and I will definitely see it again (though in 2D, as I did not feel 3D added anything to it). While I did not mind the length of the movie I feel that it probably could have been made shorter by editing the length of the battle sequences/escape from Goblin Town.

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