I might be misremembering, but I'm pretty sure that Legolas did not return to the Shire with the hobbits. According to Wikipedia, he was shot by "Hobbit archers" from the impromptu militia the four adventurers organized.
You are indeed correct. If memory serves, the actor (Christopher Lee) was upset, even lawsuit upset, about the cut from the theatrical version as its removal reduced his points on compensation.
Furthermore, I believe it is only included in the extended edition of The Two Towers (but I could be wrong on that point).