I also will choose the Hobbit as my favorite of the two.
I read the Hobbit first when I was about 9 after listening to the audio tapes of the 1965 bbc radio dramatisation of it (This extreamly faithful to the novel, I highly recommend if anyone can get hold of a copy(not to be confuesd with the later narrated version) and I must say it remains in the the top 5 of my favorite books. Its short enough to read on a nice rainy sunday afternoon, has humor(the trolls, the dwarvish squabbles and other elements), excellent pace and yet does not neglect on the descriptive elements of Bilbo's surroundings. The book also gives tantalising clues and hints which make you want to learn more about Middle Earth (such as the mysterious evil Necromancer, the ring, Gollum, Radagast and Elrond amoungst others). There is just the right amount of action in it and even now brings a tear to my eye(even at the age of 25) when Thorin dies . To top it off is structured like all good books should- have a begining, middle and end.
Unfortuantly Tolkien was too thorough with LOTR, over descriptive and way to in-depth. If he wrote in the same style as the hobbit with a slightly more adult feel he would have had an even greater book to his name than he has today. I also can't forgive him for killing off my favorite dwarf- Balin.
Having said that LOTR is still miles better than most books of today and although long winded at times, still enjoyable as much to say I like to re-read it every few years or so.
One final note the two books compliment each other nicely and you get a much better insight from reading them.