Tom is probably my favourite good hero in the game, I started a topic about him
HERE (and another one
HERE). He is incredibly difficult to make the most of (as you can tell by my tone in both topics). As you guys rightfully said, those points could be spent on an Elrond/Gandalf/etc with more immediate uses.
Having said that, he is incredibly powerful; I haven't figured him out yet and he's already scary. He does very well with your big choppy heroes, essentially gives them Mighty Hero (in addition to the other regenerative properties). Take him with Elrond, he becomes Lindir on 'roids. I personally really like him with Dwarven heroes: he pushes Gimli into Aragorn calibre if not higher, he makes Floi a full-on spellcaster, it's a lot of fun synergy there.
So he buffs your heroes and regenerates them, but he is still too expensive to just do that all game. His next function is his invincibility. Your opponent does not want big combat heroes to get stuck with Tom; hence will avoid him when possible. So now Tom's placement dictates where your opponent's heroes end up. Beyond that, he loves Thermopylae bottlenecks. 300 would have been a very different movie had Tom been available; if a key location on the battlefield happens to be bottlenecked, Tom to the rescue, now you own it.
There's a lot you can say about him tactically, his influence on a game is huge. Yes, there is often a question of whether you'd be better served taking something else; in my case that's due to my inexperience with his nuances. Without sounding too bold, I imagine that is the case with a lot of people. I once described him as playing his own game within the SBG, he has his own set of rules and that makes him very difficult to figure out, but the potential is there and I think he is entirely worth those 160 points when used properly.
As for the most discussed topic in the episode, I once read an interesting theory that he could be Aulë after he "retired". It does contradict itself in places and I go back and forth on whether or not I agree with it, but it is an interesting read nonetheless.