If you said "halfling" IMC, the inhabitants would wonder what a "ling" was and whether the crossbreeding was pleasant (like an elf) or not so much (like an orc).
If you said "hobbit", the assumption would be that you were mumbling that they should take care of the horse ("hobble it").
I'd like to have wee folk in my game, but I haven't found any that don't annoy me. Gypsy halflings and tinker or bardic gnomes are the worst offenders, but there really aren't any satisfactory versions of either race. I allow gnomes, but it's more with a shrug and a groan than anything else. I didn't realize that apathy could be so painful.