1) Shifty allows you to shift X squares as an encounter minor. It doesn't really sync up with kobolds as enemies. Of course, it doesn't need to - PCs and NPCs are different.
I'd personally prefer to see Shifty as an encounter power become "shift + other bonus", possibly "shift 1 square and choose one enemy you are adjacent to either before or after the shift. That enemy grants you combat advantage until the end of your next turn". This example would also open up the possibility of Kobold racial feats revolving around gaini9ng combat advantage.
2) Shifty allows you to shift one square as an at-will minor, with the caveat you can only use it once per round. This is perhaps the most elegant solution, while keeping it a power and keeping the flavor of the ability. It's also a bit of a kludge.
I also don't think limiting Shifty to once per round actually does anything, since you can still use your move action (and even your Standard) to shift 1 square, or to move normally.
3) Don't alter it at all. Kobolds get some pretty shoddy class abilities - +2 trap defense is highly situational. Con/Dex is a pretty poor ability combination*; no classes use them as primary/secondary except Assassin, and none use them as secondary/secondary except Fighter and Summoner Wizard. Small size limits weapon use, so Kobold Fighters are weaker. Stealth/Thievery is a decent skill combination, but no more so than Acrobatics/Thievery that Halflings get. It may not be as overpowered as it first appears.
Also note that Kobolds get no racial feat access.
I would be really tempted to go this route. Does anyone have any actual play experience with Shifty being overpowered? I know eriktheguy mentioned using it without any obvious problems, so I'd think that it at least wouldn't be an issue for every group.
The "Kobolds are evil" argument for why WotC won't publish them has one important fallacy - Gnolls were written up in Dragon. Shifty could be dealt with mechanically if it is a problem. My guess is that they don't want Kobolds stepping on the Dragonborns' toes.
Note that specifically WotC has said that they don't want to publish
too many "monster" races as PCs. Right now Gnolls, Drow, and Minotaurs are "special" and they don't want to ruin that. Actually, go ahead and add Tieflings, Revenants, Githzerai, Warforged, Wilden, Shadar-kai,
Bladelings, Shifters, Gnomes, Changelings, Devas, Shardminds, Dragonborn, Goliaths, Half-Orcs, Genasi, and Kalashtar to that list while you're at it...
