This is the crux of the issue.I personally like that Humans can be Small or Medium in OneD&D, but that does leave a weird design space with Halflings, which came from Hobbits and basically had the definition of "3-foot tall English peasants" . . . which isn't a great niche for a player race, especially in a game where Humans can be just as short as halflings.
IMO, Magical luck should be the basis of the Halfling story - “Lucky” is their big thing.
This points us that Halflings should lean into Leprauchaun-esque ideas without being reduced to anti-Irish stereotypes (and they probably shouldn’t have Irish accents or Celtic-inspired warriors lest they end up confused with LR-film style Always-Scottish Dwarves).
This tells me we should be looking wider at the House/Farmstead spirit archetype from fairy tales and folklore - as opposed to the related miner spirits or forest spirits that Gnomes seem to represent.
That then says to me that Gnomes and Halflings might really be just a single lineage with three sublineages, or else they should be three different peoples (and could be accompanied by little water people as well). This would suggest instead perhaps just letting Elves and Dwarves and other lineages also be small and say that gnomes are a type of small dwarf or elf, and Halflings are a culture of small humans (much as they were supposed to be in LR as part of the Human race…)