I found Prospero's Books fascinating, on many levels, but it wasn't until my second or third time watching it that I realized the "key" to unlocking this film: It's a ballet.
This film is essentially images and motion choreographed to music (this realization struck me during the opening credit sequence in one viewing). Now, it's an unusual ballet: The "music" includes the mellifluous recitation of "The Tempest" by Gielgud, and the choreography includes things like digital manipulation of images, and the images are heavily influenced by renaissance paintings, but I maintain that the film is, fundamentally, a ballet.
That means that you shouldn't really expect a clear expression of the story, any more than you would from any other ballet. What you should expect is a series of interesting images choreographed to music inspired by "The Tempest". As with any ballet, you can follow it if you're already familiar with the story, but otherwise, you should read the play in advance.
And, just a couple of things about some of the most common criticisms: The naked people? Think of them as invisible - they are visual symbolic representations of the "airy spirits" Prospero commands, his magic. The infamous pissing? Ariel p***ing on a model ship is just an obvious visual metaphor for Ariel creating a storm over the real ship.
