I'm about to have my lunch so this answer might be a bit briefer than it otherwise would be, I can provide more info if you're still curious later, though!

The short answer is yes Saladin really was a very merciful human being. He frequently spared the populations of towns and fortresses he besieged and let them leave in peace so long as they agreed to not attack him again. There is a strategic benefit to this that is worth noting. Basically if Saladin marched his army up to a fortress he could have them agree to leave all in peace or be forced to take it by force at great cost and effort. If his enemies knew that if they surrendered they'd all be killed they wouldn't surrender but if they knew they could surrender and leave in peace would encourage them to surrender if they knew there was no hope of holding out against him. After the disastrous defeat of the Crusaders at Hattin it was pretty easy to decide to surrender and leave than hope that a new opposition army could be formed to defeat him.

The best evidence for Saladin's habit of sparing many of those who opposed him comes to us from Ibn al-Athir. It's not that he's the only person to report it but rather that he didn't seem to like Saladin very much. Ibn al-Athir had been loyal to Nur al-Din and his family and Saladin had effectively deposed Nur al-Din's son. Ibn al-Athir then is not in a position to want to make Saladin look good by reporting his kindness (unlike, say, Imad ad-Din who actually worked for Saladin). In fact Ibn al-Athir holds it against Saladin at one point because Saladin's policy of mercy actually meant that he couldn't take the city of Tyre because it was so full of refugee Crusaders that he had no hope of taking it by force and as a coastal city it could support itself. There's some debate as to whether this accusation is fair. Saladin moved on from Tyre early because he could only keep his army in the field for so long (Feudal Service restricted the length of time he could keep his army away from their normal work) and he had not yet taken Jerusalem at that time. He really needed to take the Holy City so he left Tyre early. Still, it didn't help his later efforts to take Tyre and that city remaining in Crusader hands allowed Richard I to come to the Holy Land in a friendly port and probably contributed a lot to the eventual loss of Acre to the Crusaders.

One interesting example of Saladin's mercy comes with regard to Balian of Ibelin (Orlando Bloom's character). I'll skip over how Balian isn't really accurately portrayed in the movie (he was a noble from the Holy Land not a French blacksmith) but he did really lead the defense of Jerusalem against Saladin. What's interesting is he had previously made an agreement with Saladin to not fight him in exchange for getting his family safely to Tyre but the people of Jerusalem begged Balian to help them against Saladin's approaching army. Balian sent a message to Saladin requesting the annulment of their previous agreement and Saladin not only granted that but still spared Balian's family.

Amin Maalouf has a good section on Saladin in his book The Crusades Through Arab Eyes and most histories of the Crusades spend some time on him. The definitive biography, I'm told, is Saladin by Anne-Marie Edde which is sitting on my shelf but I haven't gotten to read yet. I'm hoping to read it this summer and really looking forward to it but finding time for luxury history reading is difficult (my research has nothing to do with the Crusades since my period is much later, I just really enjoy the time period and so when I have the time I read Crusading histories).

Edit to add: In case you were wondering Saladin did have limits to his patience. That bit where he kills Raynald of Chattillon with his own hands almost certainly happened like that. Whether he killed him himself or had him executed varies between sources but he certainly didn't offer him mercy.

For a literary perspective, Dante Alighieri included Saladin in The Inferno.

Dante respected him so much that he put him in limbo (the nice part of hell) with his favorite Greek Philosophers. Dante's limbo is much like the Greek Elysian Fields: it's a nice place, but there's a pervasive sadness. In the Inferno (and in Catholicism in general) this sadness is because the people there are not in the "light of god." But, in Dante's version, a small group of people (mostly philosophers and writers) are surrounded by a light of their own making. Saladin is part of this group. There is a particular significance to Saladin's inclusion here. According to Catholicism, you can't go to limbo if you were aware of Christianity and rejected it. The Greek philosophers lived hundreds of years before Christianity started, so they get a free pass, but the Saladin didn't. The Saladin knew what Christianity was, and he wasn't Christian. Dante's inclusion of him in limbo breaks the rules of his own religion, and indicates just how much respect he had for the man.

This doesn't speak to the Saladin's actual actions, but it does show that the way the media portrays him now is nothing new. People have had that view of him for hundreds of years. At the very least, since only a century after his own time.

TL;DR Dante wrote about Saladin in the Inferno, and included him with the best-respected Greek philosophers, even though that broke the rules of Catholicism. He lived only one century after Saladin, and had a view of him that is consistent with the one portrayed by modern media.

I know I am late to the party, but the greatest chronicle of Saladin would be Guillaume de Tyr's biography of Saladin by a crusader. Guillaume was a nobleman who was wounded and picked up from the battlefield by the Saracens. After he was treated, he was set free. This attitude from an enemy startled him and he asked to be Saladin's chronicler. He spent many years with Saladin returning home to France many times but always returning.

This I believe is from his book.

How about the scene where Orlando Bloom teaches the locals how to cultivate the land?

Should it not be the opposite? Weren't eastern cultures more developed in things such as agriculture, and the point of the crusades was to exploit some of these developments where the west lagged?

Would I be permitted to ask an additional question following on? How accurate is the portrayal of Saladin in Lessing's "Nathan der Weise"?