Believe it. The contract reads 120 minutes for the theatrical cuts, and the extended cut wasn't guaranteed until early 2002, when Fellowship was clearly a major hit. The reason the films are all around three hours in the theaters is due to the execs at New Line liking the 2:52 Fellowship cut...
That's an interesting idea. I also thought that the fade-out after the "here at the end of all things" line would have been a killer place for an ending -- it would have broken every heart in the theater.
And I think the audience felt it appropriate... every time I saw Return in the theater...
First off, to clarify:
Peter Jackson's contract stipulates all three films run no more than 120 minutes. That's what the contract says (according to PJ himself). Those cuts don't work. The theatrical cuts include those scenes that round the film out and make it work - hence, these are the best...