The Trojan War definitely happened, but it wasn't quite as huge and magnificent as Homer made it out to be. He deliberately exhaggerated the height and thickness of Troy's walls, as well as the size of the city itself, to glorify the Greeks by showing what a massively awesome enemy they had defeated.
Actually, the walls were just as Homer recorded, but alas, Schliemann cut a trench into the mound of the citadel destroying a good bit of the evidence for this. Dorpfeld's later excavation (and he was present with Schliemann during the earlier one) found the remaining parts of the wall. The excavations going on now have found that the Roman and Greek city surrounding the citadel was built on Mycenaean-era foundations and in some spots using the original outer walls.