[Boromir88]

Just to point out one thing that I think is worth mentioning about Sauron taking on a 'physical body.' It appears to be a necessary thing if you want to interact or effect the physical world, you must have a body of your own. Let's take the Witch-King when he is killed for example, as Tolkien tells us in Letter 246:

'Witch King had been reduced to impotence'

If the Ring is destroyed Tolkien writes to Milton Waldman:

...if the One Ring wwas actually unmade, annihilated, then its power would be dissolved, Sauron's own being would be diminished to a vanishing point, and he would be reduced to a shadow, a mere memory of malicious will.

For another example Gimli doubts the Dead Army's weapons would have any 'bite' to them. Which I would agree with Gimli, because the Dead Army are spirits who's body has left them...with their weapon being fear, though they could not physically interact (as in stab, punch, round-house kick - whatever) since they had no bodies.

So, for Sauron to have some sort of interaction with the people on Middle-earth a physical body would be necessary. As Raynor and Spawn explain, not only for 'fighting' purposes, but also to appear fair and noble to get people to do what he wants.

As stupid as the concept of Sauron putting so much of himself into the Ring to the point where if it was destroyed he would forever remain a shadow...unable to reform again. It really wasn't something that was all that stupid:

1) The Ring could only be destroyed in the place it was made, Mount Doom, and more specifically it appeared to have to be destroyed in the Sammath Naur.

2) However you want to see the destruction of the Ring (as Eru getting involved and causing Gollum's fall, Gollum accidentally slipping...etc whatever it is). We have to realize the Ring's destruction was an act or extraordinary strength and will that Tolkien thinks only Frodo could have done during this time (that is getting the Ring to Mount Doom:

'Frodo deserved all honour because he spend every last drop of his power of will and body, and that was just sufficient to bring him to the destined point, and no further. Few others, possibly no others of his time, would have got so far. The Other Power then took over: the Writer of the Story (by which I do not mean myself), 'that one ever-present Person who is never absent and never named' (as one critic has said).~Letter 192

Not only did Sauron believe that destroying the Ring by someone's free will was impossible, Tolkien thought so as well:

I do not think that Frodo’s was a moral failure. At the last moment the pressure of the Ring would reach its maximum - impossible, I should have said, for any one to resist...~Letter 246

So, while putting pretty much all your power into one Ring, so much that if it was destroyed (or someone else mastered it) you also were essentially destroyed (though not completely) seems rather foolish. It really wasn't. Sauron was able to enhance his own power, desired to control all the Ring's of Power (to a certain extent I'd say he was successful), and the very fact that this little Ring had to be destroyed in one specific place...which to do so was beyond anyone's free will, we see it wasn't all that stupid at all.

Edit: X-posted with morm