[Lalwendë]

Why would Saruman expect Frodo to have become stronger as a result of being the Ringbearer? He was knowledgeable in Ring Lore and might easily assume that Frodo would be entirely incapable of putting up any challenge against him. In addition, Saruman is one of those in Middle-earth who underestimates Hobbits and considers them to be passive and a pushover; this is in fact more or less the case until Frodo, Sam, Merry and Pippin return and stir up resistance.

As to why he goes there in the first place, he was clearly exploiting the resources of the Shire at an earlier date so this is an extension of that. It is a rich place in terms of potential labour force, and also can provide goods such as food and pipe-weed, valuable resources for someone who wished to build his own army.

I think Saruman does not bother to rouse himself and challenge the Hobbits at the Battle of Bywater as he simply believes he will overcome them at the doors of Bag End. He has the pride and arrogance of a conqueror over a seemingly small people; he allows them to kill his own people as these Men are expendable, he is sitting smugly in Bag End assuming he will win out when they come to challenge him, that is if they even dare to challenge him. When he issues his threat, the Hobbits all recoil in fear until Frodo warns them against this, which shows that Saruman has wrongly guessed at what Frodo will now be like as a result of his experiences.