There's the original version, released in 1986 and on videotape, and the 2002 Director's Cut, available on DVD. The latter version is one of my all-time favorite movies. It compares quite favorably with Peter Jackson's "Lord of the Rings" and is a modern classic.
The theatrical release of 1986, shamefully butchered (chopped up and badly re-edited) by the mindless suits at Warner, and with its original Jerry Goldsmith score replaced by the rather trite Tangerine Dream soundtrack, is the version most people have seen. It was released on videotape as a children's movie. What it is, and was intended to be, is a fairy tale for adults. In fact, it's too intense for really young children.
It's hard to say that the '86 version deserves any more than the "6" it's rated at on its IMDb main page. It is a disappointment, primarily because it's now impossible to watch without think how much better it could be. The feeling and tone of the film were ruined by its treatment.
The Ridley Scott Director's Cut, released in 2002, is a completely different movie. If you haven't seen this version, you haven't seen the movie. It deserves a score of 9 or 10.
It doesn't look like a movie made 20 years ago. Scenes which are vital to the tone of the film and the meaning of the story have been restored. The sumptuous original soundtrack, recorded with a full orchestra, has also been restored, and this adds more to the film than can be put into words.
About the performances: A very young Tom Cruise is excellent as the hero. Tim Curry as the Lord of Darkness is awesome; his costume and voice alone are worth the cost of renting or buying the DVD. Mia Sara is absolutely stunning as Lily. She actually plays two different versions of her character, both wonderfully. This was her first role, a risk for Scott on such a big budget film, and she turned in the performance of her career. She's never been better, or looked more beautiful, than in this movie. The elves and fairies, both good and evil, are incredibly real-looking and believable. The costumes are perfect, and the sets are breathtaking, literally. One of the largest indoor sets ever constructed - a huge fantasy forest - was built for this movie.
If you haven't seen this version, rent it. If you have kids, buy it for them; they'll watch it over and over. My daughter and her friends watch it repeatedly, she's probably seen it 50 times.