It isn't an oversight; it's all explained in the introduction to LotR. This is an old expression from half-remembered stories:
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There remained, of course, the ancient tradition concerning the king at Fornost, or Norbury as the called it, away north of the Shire. But there had been no king for nearly a thosand years, and even the ruins of Kings' Norbury were covered with grass. Yet the Hobbits still said of wild folk and wicked things (such as trolls) that they had not heard of the king. For the attributed to the king of old all their essential laws; and usually they kept the laws of free will
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This wasn't the only expression they had about the king; Appendix A mentions that
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for a long time many still looked for the return of the King. But at last that hope was forgotten, and remained only in the saying When the King comes back, used of some good that could not be achieved, or of some sore evil that could not be amended.
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The hobbits still remember the old kings a little bit, whether there's currently one or not, and that's what Bilbo meant.
--Belin Ibaimendi
[ March 08, 2003: Message edited by: Belin ]