I see there's some controversy in the thread over the comic ending vs book ending and I'd like toss my 2 cents in.
When I first read the comic and the giant squid came up my reaction was "ok." I thought it was way out of left field, really stupid and incredibly dated because (mistakenly) a lot of people were regurgitating the same point of "bruh, the squid is there to dunk on golden age comics being stupid lol" which didn't jive with me because if you're being shit on purpose to make fun of other shit, you're still shit, but it didn't really cause any plotholes and while incredibly fucking dumb, it technically did make sense so it didn't make me think that much less of the comic.
Then I saw the movie and I thought that the manhattan ending made MUCH more sense and felt way more plausible and while maintaining the verisimilitude of the story far better than a squid (because manhattan working with ozy was set up from like the first few minutes and reinforced over and over) so I liked it a lot more.
After thinking about it for a while though and reading what people have to say here, I'm begrudgingly going to have to side with the squid ending.
Yeah its completely retarded and out left field, but it works while the manhattan ending doesn't for several reasons:
1.) It creates an extremely sharp contrast with the rest of the story putting all the dark and gritty elements into far greater focus.
2.) Manhattan IS an american element while the squid is totally alien. Framing manhattan has a 50-50 chance to backfire and make the rest of the world blow back on america kickstarting the nuclear war that ozy wanted to avert.
3.) Without the squid there's no explenation for how or why the comedian goes insane (or even why ozy wants him dead). The movie doesn't even attempt to adress this, which in hindsight leaves a bit of a sour taste in my mouth (but I still think its the best comic book adaptation of all time, and the second best book adaptation of all time after lord of the rings)
The comedian is such an important character because he's the greek chorus of watchmen: "Its all a big fucking joke."
He's there to highlight the absurdity of the human race progressing so far, but somehow bringing its own end by wiping itself out with nukes and the squid is just the cherry ontop of the inherent absurdity of the very concept of nuclear war itself.
"Three hundred thousand years of human progress being wiped at the push of a button because two assholes couldn't get along makes perfect sense, but a giant squid falling from the sky is somehow too absurd and unrealistic?"
tl;dr
Yeah the squid is fucking retarded, but the human race wiping tself out with nuclear war is also kinda fucking retarded, which is the whole point of the comic, so it fits.