The Hobbits' heads were too small in relation to their bodies. I see them as having normal human-sized heads but shorter bodies. To me, this is really obvious in the "Fellowship line-up" at Rivendell, where their heads are tiny in comparison to the Men (and Wizard) in the Group. But this would have been rather difficult to remedy without using CGI for them most of the way through.
As for the Elves, why do they all have to have girlie-hair (
), pouty lips and high cheek-bones? Effeminate does not, in my opinion, equal "other-worldliness". At least Elrond didn't look like a chorus-line extra.