Executive Meddling: The reason the theatrical cut was so much shorter than the Director's Cut. Fox wanted a Gladiator style action movie with a romance subplot, rather than the political drama Scott and co created. On top of that, they thought audiences wouldn't be able to handle a 3 hour film, disregarding high grossing films like Titanic and The Lord of the Rings. The theater-released version was panned, yet the Director's Cut was critically acclaimed as one of the best movies of the year.
Ridley Scott wanted the character of Sibylla to become a nun at the end of the film but the studio insisted it end with her and Balian ending up together.
At the start of the project, KOH originally began as a Russell Crowe vehicle called Tripoli. Screenwriter William Monahan (The Departed) had a script written, Scott signed on to direct, 20th Century Fox greenlit it, sets and art assets were being made and then things went nowhere. After two tries of getting it off the ground, Monahan began writing Heaven after Tripoli fell apart and Scott always wanted to do a movie about the Crusades.
The film was pretty much it with Executive Meddling from the start, with the execs being very uncomfortable with the length of the script and the subplot of Eva Green’s Princess Sybilla’s son, who briefly ruled Jerusalem after King Baldwin (Edward Norton) dies. In Scott’s words on the 4 disc DVD set, he mentioned that studio heads said that the plot “went off on a tangent”. The studio demanded Monahan to write two different versions of the script: One with and without the kid. Scott and co. shot the former.
Filming was actually pretty smooth, save for an instance in which Orlando Bloom came down with the flu and suffered some hand injuries.
When filming wrapped up, Fox was bothered by the length of the cut that Scott had presented them (around 186 minutes) and forced him to cut the film down to a measly 145 running time, exercising the plot about Sybilla’s kid, among many other scenes. Their reasoning was that audiences couldn't handle a three hour film, disregarding successful long movies such as the studio’s own Titanic and The Lord of the Rings. They also mismarketed the film, making it seem more like Gladiatorset in the Crusades, rather than the Drama that was made. This backfired, resulting in poor box office returns and mediocre reviews (though it did fare better in international markets).
Luckily, the film found new life on video in the form of the Director's Cut, which restored the original running time and as a result, received much better reviews than its theatrical version.