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As far as hobbits go, it is hinted at that they mixed in and eventually grew to be as tall as men. *is there hobbit in me?* and for dwarves, maybe they still live in mountains that we've never been under. . .
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Where in the book did you see that? [img]smilies/rolleyes.gif[/img]
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I suppose Hobbits need some description nowadays, since they have become rare and shy of Big People, as they call us. They are (or were) a little people, about half our height, and smaller than the bearded Dwarves. Hobbits had no beards. There is little or no magic about them, except the ordinary everyday sort which helps them to disappear quietly and quickly when large stupid folk like you and me come blundering along, making a noise like elephants which they can hear a mile off.- The Hobbit
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The (or were) seems to mean extinct.
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The final fate of Dwarves is uncertain. The Elves said that they have no life beyond Arda and the death of their bodies. But the dwarves themselves claimed that Aule would bring them to the Halls of Mandos, whence they will join the Children of Iluvatar at the end. - TCGTME
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There could be a more detailed account of the fate of Dwarves in one of the HoME's, perhaps someone will enlighten us with more about Dwarves fate.