It would have been terrible to be honest. People would have felt nothing for any of the characters. Maybe some for Bilbo, Gandalf, and Thorin but the rest of them they would've cared less for the rest than they did after part 1. Tolkien doesn't give a lot of info on the rest of the Dwarves and everything would have been so smushed together. The Hobbit to be properly fleshed out needed at least two movies and then adding the material to tie both stories together makes 3.
Now, I know as Zach said the 3 The Lord of the Rings books each only got one movie. The thing is Jackson actually cut as much out as he added. In FOTR you lost the barrow downs and Tom Bombadil (thank goodness), Frodo/Sam don't meet the Wood Elves for as long of a time, farmer maggots farm, and that allowed him to move Boromir's death from the start of The Two Towers to the end of The Fellowship of the Ring (made more sense to do that). The Lord of the Rings is compressed but to be honest while every part reading is fun (even Tom Bombadil) some of it would have made for not so great movie stuff. Also, in The Return of the King the Battle of Pelennor Fields doesn't get a lot nor does the Battle of Helm's Deep but the movie gives you more time there. In the end what Jackson is doing makes sense at least to me as someone who has read all the books numerous times.