[The Only Real Estel]

Of course she was surprised. She wasn’t expecting it. If she had been, it would have made her look weaker.

That isn't the way that it came across to me. From Arwen's chanting I got the impression that it was Arwen who 'called up' the flood (in the movie of course). And now that davem has posted the translation of what she was saying I am further convinced of it.

It doesn’t take much wit to work out (with a little patience) that the flood was invoked by either Elrond or Gandalf, who we subsequently learn is there, or both (as in the book). I can’t recall, but it may even have been explained in the following scene with Gandalf and Frodo

I don't think that someone who has never read the books would draw that connection. Because Gandalf did not explain it to Frodo later (as he did in the books), we are never specifically told who called up the flood and therefore assume it was Arwen (because of her chanting). We are introduced shortly to Master Elrond, apparently an Elf who has healing powers, despite his scary eyebrows. But we don't quickly decide that he must've called up the flood. By using our basic powers of deduction we discover that he is apparently the Master of Rivendell, and that he can't chair a committee meeting very well. And that is about all that we learn about him, other than through our friend the phantom, who tells us he's really as 'kind as summer' (we could swear he meant as 'kind as sunburn'). And TTT and RotK don't reveal anything either, other than he's not a very positive guy. Though no doubt the question of who called up that flood in FotR isn't on our minds while we watch the next two movies in the trilogy.

What I want to know is, what's wrong with starting the story with Bilbo's birthday party?

Because Jackson doesn't have a lot of time later to explain about the Ring. Tolkien could afford to gradually expound on the Ring by explaining little bits here and little bits there; but for PJ the best way to go was with the introduction he chose. I think that if you have the opportunity to simplify the history of the Ring, the Last Alliance, Isildur's Betrayal, Gollum's finding of the Ring, and subsequently Bilbo's finding of the Ring, leaving basically no real questions about the story that you are about to present--and doing this all in only twenty minutes (or one twenty-seventh or twenty-eighth of your films)--you go for it every time.