While their are some legitimate issues with factions (like guys who start a faction to put a claimant on their liege's throne, and after succeeding turn around and do the exact same thing to the guy they just helped become King), by and large the majority of the "issues" people have with factions is that they don't like their realms actually having rebellions that are a challenge to handle. Personally, I'd say factions are one of THE biggest improvements the game has seen. It needs some tweaking, but by and large it makes the game wonderfully more fun and challenging. Right now I'm the Queen of Navarra and the Duke of Kabylia has started his own, powerful independence faction. Little curious to see if the also powerful Duke of Barcelona joins it... if so, could be a nasty time for my little kingdom.
That, and they put an end to the old system of whack a'vassal. Sure, there's still regularly civil wars, but they're less frequent and sometimes challenging, unlike the old "I don't like you so I'm gonna revolt against the HRE with one county!!!" crap that used to go on.
SoI isn't a must, I'd say, unless you plan to play Muslim. I'm personally torn with em'... I played a game as a Persian, which was a blast, but now I really don't have too much desire to play any other Muslim culture. If I ever play in Mali, it'll be as a Pagan... an Ethiopian Muslim game could be fun (but probably need ruler designer), and North Africa could be a nice little challenge some day... but yeah, that's about all it does for the player. Think some of the Muslim mechanics only exist for the AI as well with SoI, but its not a game changer.
But LoR I'd say is worth the purchase. All the fun Byzantine improvements and retinues... aye, I love em'. But 1.08 has been mostly fantastic, and I couldn't imagine doing what you're doing and refusing to update.