The acting was good. If you don't take my word for it, remember that the Screen Actors Guild (comprised of actors) gave it the "best ensemble" award.
You don't need a movie with that many characters to have one dominating performance. At least for me, suspsension of disbelief was achieved, and the story was told well. I have no need to exclaim "wow, that [actor X] has some great chops - they deserve an award" while watching a great movie. All the individual noms were better individually than any one LOTR actor/actress, but in terms of the total impact of the entire cast, LOTR:ROTK is up there, and hence the SAG recognition.
If you watch the extras on the LOTR DVDs, and realize just how huge of an endeavor this project was for everyone involved, then you realize just how much this project deserves the highest levels of recognition. The actors gave up their lives for years. Thousands of authentic armor and weapons were smithed with TLC (some armor pieces even had ornate engravings on the inside, which never had a chance of being onscreen - that's dedication). New line threw an unprecedented amount of money at a director who had never previously produced a box office blockbuster (although "Bad Taste" is an awesome movie, IMO).
I was at an Oscar party tonight with someone who had worked for Miramax when they were contracting LOTR from Peter Jackson, and she described the total lack of balls from that studio. They kept sending people to New Zealand wanting to be told to kill the project, and those people kept reporting back that the movie (it was just going to be one movie at the time) had amazing potential. They even sent some bigwig who had "titanic" embroidered on all his clothing to subtly remind everyone that he was involved with the production of Titanic (forget whether he told Miramax what they wanted to hear or agreed with his predecessors). Eventually Peter Jackson got the hint and said something like "look, if you're so worried about this movie, let me shop it around to other studios and see if we can get someone else to buy it and take it off of your hands." The rest is history.
My point is, in an industry where people make one good move and then milk any initial popularity with half-assed sequels until the well dries up, it's damn refreshing to see a group of filmakers and actors make 3 solidly good movies. Even if you didn't personally enjoy LOTR (to each their own), take heart in the fact that Holywood loves to imitate past success, and perhaps we'll see more strong licenses scripted and filmed together in a single period. Sequels where the good actors and stories you liked in the first movie are guaranteed to be around in the same spirit as the first.
Clint Eastwood has had plenty of recognition for his talents already. The only person who I feel was robbed at this year's oscars was Bill Murray. Sean Penn annoys the hell out of me, and I considered his performance in River the biggest pile of overacted **** I've seen in a long time. Maybe after "I am sam" and this role, he'll allow himself to take some normal, less over the top role and leave the "prove I have chops" type roles to better actors.