I wouldn't call that modern. Still, I can say "recent" instead. Either way I'm talking about fantasy people under 50 are likely to have read. Dunsany is well outside that, bless his heart. That's something few people even on this board of grogs and fantasy fans have read.
I'm afraid that's demonstrably not true in fantasy writing.
Part-demons are more common than halflings by pretty much infinity until the Hobbit gets published. Then part-demons are just massively, hugely more common. Same for dwarves. Elves or elf-like beings are pretty common though.
Then LotR gets published, and it's still essentially the case.
Then the less-daring kind of Tolkien-derivative authors appear - and some, only some of them - feature halflings or things so close they might as well be (Shannara is the only definite example from that era that I can think of - Jordan replaced halflings with humans in his Tolkien-derivative). Part-demons are definitely still ahead if we're going back to Dunsany and so on.
The D&D comes out. D&D doesn't influence many writers to include halflings or similar, but those writing specifically about D&D settings like Dragonlance and the Forgotten Realms do (we shall count Kender as halflings). And it is in these D&D-based books, whether it's the original Dragonlance Chronicles, or the Drizzt books or whatever, or even the Alias novels, that we see an explosion of halflings. More than all of fantasy literature before that.
We also get Tad Williams' Dragonbone Crown trilogy, but I think it's questionable as to whether the Trolls like Binabik count as "halflings" (do all short non-evil races count?). Less so some of Williams' other work though, which features at least one trilogy with unarguable halflings.
And you say by 1995 video games were influencing people, and sure, they were - but video games were massively influenced by D&D. Video games typically had the D&D races or something very close to them. Occasionally they had lizardmen or something like them too, but dragonmen and part-demons were exceeding rare in video games in the 1990s and the 2000s, and indeed, they still are in the West. In the East, someone time the early 2000s part-demons started becoming very common in MMOs, but remain rare in single-player video games (dragonmen remain rare in both).
There's just no way part-demons aren't "more traditional" in fantasy than halflings. Halflings are mid-20th-century novelty, that were popularized by D&D and video games, and are now fading, as they failed to establish themselves outside of Tolkien. Half-demons and their ilk go back into mythology. Gnomes and dwarves are pretty trad, but they're totally unlike halflings. I believe there's a Native American legendary being that is very close to a halfling though I forget what (there is even some limited evidence Tolkien was aware of this Native American mythology, but that's another story and I don't have my reference to hand).
Yes and it's a fair comment!

I will try to restrain myself somewhat!
Yes, I am sure, at least for my understanding of "realistic".
Halflings/hobbits aren't homo floriensis and they aren't simply humans who are genetically short. They have chimp-strength in all editions, for starters (yes even the ones where they get a penalty, they're incredibly strong for their size).
More to the point I'm not sure realism is "relevant" in a game where in most settings most of the races were created by the gods. I also don't think it really makes them less gonzo but YMMV. I personally think it's extremely in the "gonzo" tradition to include murderous little hobbits with chimp-strength in parties full of fancy elf bards and dragonborn paladins and so on.
No he didn't. He basically excluded everything except a narrow range of Northern European myth (much of it from outside the UK). He even intentionally excluded Arthurian and Celtic myth, which to me, lead to him totally failing at his goal of making an "English" fantasy mythology - instead he made a narrower Anglo-Saxon one. But I regard myself as Scottish so what do I know? It was still impressive and totally changed the course of fantasy.