I disagree with the choice for several reasons. Your statement that they have no place in the fantasy world is subjective so there is no real point in my saying that you're right or wrong. It's right for you and wrong for me.
I played a gnome illusionist named Jandowyn Farrowfox many years ago in 1E campaign. Jandowyn was my first ever gnome character. He was playful and spry and great deal of fun. Yes, he was stereotypical in many ways as he was a trickster who loved to collect gems to the exclusion of buying drinks with them. I've since gone on to game mastering and have on several occasions represented gnomish societies in need of help or having something the party needs. It's been too long to remember each occasion.
Also, I'm currently running two campaigns in which gnomes play significant parts. The party in my Valley of Obelisks campaign needed a cleric and none of players were keen on playing one. I have been playing an NPC cleric of Heironeous named Jalis. He is unusual in that he was an orphan and raised by a human cleric of Heironeous. Yes, one could argue that he's not a "real" gnome because of his background, however he still exhibits many of the traits of his race and certainly still has all the gnome's game abilities.
Further, I'm running a second campaign that started with the Sunless Citadel adventure and has blossomed. The adventure features a goblin prisoner, a gnome fighter/cleric named Erky Timbers, which I also NPC. The party has taken him in and they treat him like one of the family. The players are very fond and protective of him and even talked him out of leaving the party. As a matter of fact my son's ranger was killed and he decided to try his hand at not only playing a gnome, but at playing Erky's brother, Milo.
So, once again, the decision to cut gnomes is wrong for me on several levels. Yes, there's some nostalgia connected with my gnome illusionist. There is also the fact that my son has chosen to play one which is a common experience we'll get to share. But Wizards is ultimately making decisions for me that I don't want made and that I cannot abide. This is simply one more item on the list of deal breakers for me. I'll stick with 3.5.
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AWizardInDallas.com