Well, thematically, they were always standing on each others toes... and the gnome had shoes. Call it natural selection.
IMC "halfling" is just a nickname for young, beardless, adventuring gnomes who haven't found a hobby yet (be it magic, tinkering, gem-cutting, cooking, gardening...), finding a hobby being an important part of gnome culture. I suggested giving the title of "Hobbied" to those who had (yes, I'm hilarious like that) but it didn't stick for some reason. Thievery not counting as an acceptable vocation, even older rogue gnomes are often still called halflings.
I was just kind of wondering the same thing when I saw the Kender thread. My core list would be:
Human
Elf
Dwarf
Half-elf
Half-orc
Halfling
That list is only if I were going to bother defining a core list of races. I'm more a fan of the Savage Species outlook - if a player wants to play a character of any race, why shouldn't they? I think if the game were designed with that view from the ground up, you'd find consistency across creatures and a mechanism for designing appropriately powered versions of very powerful creatures that would still be more or less balanced with the rest of the group. While obviously the DM would limit options based on the campaign, I'd be psyched to see a SS-type take on race incorporated into the core rules.
If I get to play a Grumpy Cat Cleric I will endorse you as lead designer for 6e!Those would be my core races as well. Gnomes, Dragonborn, Tiefling, Kender, Grumpy Cats, Goliaths, Shifters, etc can be optional races for down the road in PHB2 and PHB3.
Word.Dragonborn: How did it take four editions for this to happen?! The game is called Dungeons and Dragons!

(Dungeons & Dragons)
Rulebook featuring "high magic" options, including a host of new spells.