Aside from the quote from the Letters there are some places in the books themselves where it's indicated that Sauron had a physical form.
When Pippin looked into the palantir "he" appeared, and I've always taken "he" to mean Sauron.
When Shagrat and Gorbag were talking in the underway Shagrat makes the comment that the prisoner is to be kept safe until "He sends or comes Himself." The way that is said always made me think that Sauron had a physical form that he was moving about in.
And finally Gollum, who would know better than any of the other main characters, because he was the only one of the main characters who went to the Barad-dur, said, "Yes, He has only four on the Black Hand, but they are enough."
That particular passage also brings up an interesting question about wounds inflicted on one of His physical forms being carried over to later physical forms.
Hope this clears up any confusion.
