I'm actually surprised that the other players are taking this so badly, and getting so uptight about the situation.
In a SWd20 campaign I play in, I have a character who wantonly siphons off party funds into her own accounts, charmingly and diplomatically mentioning a lower figure from the transactions she has been performing for them.
All the players know what is going on, naturally, and they laugh at the PC with its particular "character flaw", pulled off with either panache or bald-faced cheek.
Assuming that the halfling is only stealing trinkets and nothing valuable (the prized magic ring, for instance), then what is the harm in that? A party could be adventuring together because the're, you know, friends? And prepared to overlook and laugh at a friends pecadillos and character foibles?
So Buttercup - in my opinion, I don't see that the player is "wrong" and deserving of being slapped down. Furthermore, to all the people who've chimed in on the thread about appropriate penalties for stealing being applied... most D&D is about committing violence to other beings and stealing their stuff, right?
Some of the best fiction deals with flawed heroes - and disagreements normally need one person to give offence and another to take offence. If the other party members decide not to take offence, where is the harm?
</ soapbox >