[Garen LiLorian]

I think there is a 'hell' in Tolkien's world and it is the Outer Void, where Melkor was cast and where he serves his sentance. My reading of Saruman's death has always been that, when he is refused re-entry to the West, he is being cast into the void.

The fact that even the great evil of Middle-Earth is merely 'serving time' leads me to believe that Eru wouldn't (or possibly couldn't) cause any of his creations to ever cease to exist entirely. We see some echoes of this in Gandalf's actions and words to Gollum as well. (Having a part to play before the end, kind of thing)

Having said this, I entirely agree with Heren's (or Galorme's) thoughts on hell as a state of mind. Certainly people are capable of 'putting themselves through hell' and I tend to think that the only way that one can be incapable of being saved is if one doesn't want to be. And furthermore...
No, no. Must... not...wax...metaphysical... Grrr!

But getting back to Middle Earth. Tolkien seems to prefer purgatory to eternal hell, at least for the purpose of his faery story. This is born out with Melkor and the Void, (does it say anything that even the Big Bad is only in purgatory?) and also some of the lesser 'hells on earth' that have been spoken about so eloquently above.