My take:
You have to take D3 in context.  There's two things going on here...  An impressive new graphics/game engine, and a remake of a game from 1994.
As far as the engine goes, I've been fairly impressed with the graphics.  The physics and object interaction are not flaunted in this game, though.  My understanding is that the capabilities are THERE, but not being used.  This was perhaps in part to give D3 a larger install base, and also likely because for this particular game, it didn't really add much.
As far as the GAME itself goes, I think they did a pretty good job.  We've got a story from 1994 being played out in 2004 graphics, and as cheesy as it is to have a monster jump out of a wall behind you in the dark, it does often times get scary.
They did an EXCELLENT job of scripting out the the experience while sticking to the old story line.
I would say that bump-mapping finally sees it's potential.  Unfortunately, now I'm wanting to see actual polygons for surface detail.
I can get over the disappearing bodies, b/c we're dealing with demons.  Creative license, folks:  demons aren't restricted to the normal laws of physics!
I definitely agree that I was disappointed in the AI.  After seeing the HL2 demos showing their AI capabilities, D3 pales.  Hopefully this limitation is due to implementation, and not the engine itself.  It seems the AI is a bit better in the later levels, but at times they do tend to fall back on the old "throw out a bunch of dumb enemies at once" technique.
If you're complaining about the shotgun, I don't mean to be rude but you probably just have bad aim.  It's pretty damn lethal.  Point blank it tends to disinegrate (sp?) enemies with a single shot, and medium range it's still an effective weapon.  Long range--it's not meant for that.  You want a real "workhorse", though, pull out the chainsaw!  It seems no one is talking about it, but I find it to be one of the games little gems.  If you want to run through demons and feel like a total badass, the chainsaw is *it*.  Two-stroke power!  Once I got my hands on it, I instantly fell in love with the chainsaw, and it's my weapon of choice in close quarter combat.
Some other disappointments I noted:
Enemy damage:  head-shot or toe-shot, makes no difference.  I was really hoping that if I shot the leg, I would seem some limping.  REALLY I would like to blast a leg with a shotgun and have it blown off.  That could have been used to create some extra creepiness.  I read that there is "rag-doll" character modeling in this engine, but you wouldn't know it from D3.  I want to blow their heads off!  Bottom line is that I really wish there had been more realism in the character damage modeling, and I think this was their biggest mistake.
Environment:  There's not quite enough ability to manipulate or even reconstruct the environment.  The chainsaw throws sparks off of ANY solid wall, it seems.  It would be nice if I could cut through at least some of the thinner rails with the chainsaw, and make new paths.  It would be *really* cool if I could blow holes in the walls, maybe it could cause airleaks, create shortcuts, and/or other cool things could happen.  Ulitimately, we're still dealing with invulnerable "computer" walls skinned with a texture.  I wish we had walls made of *materials*.  A good example of this is some of the vents you walk through and can see down into a room below.  They have these metal looking grates, but they are really just a texture over a see-through plane.  The flashlight works through the grate, but does not cast the shadows from the grate itself.  The grate looks completely flat, and it is, because it's not modeled metal that your standing on.  This is something that people notice intuitively, even if they don't know or understand PC graphics.
Lighting:  In general, the lighting is excellent from a techincal perspective.  However, the lighting doesn't work realistically when dealing with mirrors.  I want a glare in my eye if I shine the flashlight into my face in the mirror.  I want the light to reflect off the mirror and illuminate the wall behind me as well.
I haven't actually finished the game yet, but I do think it has little replay value.
My overall opinion/hope is that D3 is a mere taste of a more capable engine.  As CPU and video card power increase in the actual install base (in other words, not what's available, but what's actually in use by the majority of people), I hope that the engine will begin to show it's true strengths.