I think gnomes and halfling are both interesting, if you change their flavors just a little bit.
IMC, Gnomes are earth-spirits who have largely been forced into slavery by more powerful races. Large cities may have populations of free gnomes, and certain areas far from the campaigns center have communities of free gnomes, but most gnomes in the world are enslaved. They tend to be quiet, mournful, and watchful.
Halflings IMC are monotheistic islanders; most paladins are halfling. They are fierce, passionate, loyal.
A little bit of work can distinguish them nicely; it's just the core books that make them so similar and uninteresting.
Daniel