From Letter 211:
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Sauron's personal 'surrender' was voluntary and cunning: he got free transport to Numenor! He naturally had the One Ring, and so very soon dominated the minds and wills of most of the Númenóreans. (I do not think Ar-Pharazôn knew anything about the One Ring. The Elves kept the matter of the Rings very secret, as long as they could. (....) The change of names [of the Kings] went with a complete rejection of the Elf-friendship, and of the 'theological' teaching the Númenóreans had received from them.)
Sauron was first defeated by a 'miracle': a direct action of God the Creator, changing the fashion of the world, when appealed to by Manwë: see III p. 317. Though reduced to 'a spirit of hatred borne on a dark wind', I do not think one need boggle at this spirit carrying off the One Ring, upon which his power of dominating minds now largely depended. That Sauron was not himself destroyed in the anger of the One is not my fault: the problem of evil, and its apparent toleration, is a permanent one for all who concern themselves with our world. The indestructibility of spirits with free wills, even by the Creator of them, is also an inevitable feature, if one either believes in their existence, or feigns it in a story.
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Also in the same letter (next paragraph) some comments on the "easy" success of the Last Aliance:
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Sauron was, of course, 'confounded' by the disaster, and diminished (having expended enormous energy in the corruption of Númenor). He needed time for his own bodily rehabilitation, and for gaining control over his former subjects. He was attacked by Gil-galad and Elendil before his new domination was fully established.
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As the second quote speaks of 'bodily rehabilitation', it is clear that he was bodily incarnate on Middle Earth and in Núménor, before the Downfall of the latter. (I think the Silm often enough states likewise.)