[the phantom]

How would Sauron know what a hobbit looks like if he's never seen a Hobbit before?

I would completely agree with that.

So in response to Fordim earlier theorizing on Sauron's thought process-

Hey, a hobbit? Is it the Ringbearing one or not? Hmmmmmm....a bit taller than the one Witchie told me about....not quite so red in the cheeks....younger than Baggins.....no sign of the Ring on his finger or around his neck.....no sense of Ringiness here......nope, it's not Frodo Baggins.

There is no way Sauron could've possibly seen Pippin in that much detail considering that he didn't know he wasn't Saruman at first. In addition, there's no way he had that much info on the hobbits already since Pip had to tell him "I'm a hobbit".

Sauron hadn't seen mug shots of the hobbits. If Sauron was given pics of the four hobbits he wouldn't have any idea which one was which.

And if anyone remembers, the original reason I'm arguing this point in the first place is simply to disprove the notion that Sauron could in any way rule Pip out as the Ring-bearer. I think Sauron thought Saruman had captured the Ring bearer! Why else get excited and send a Nazgul? Would Saruman go to the Shire and kidnap Lobelia and show her to Sauron? Nope. What's the point? There's only one reason for Saruman to show off a hobbit to Sauron- to say "I've got the Ring!"

I don't see how we can get a sense that Sauron didn't see Pippin.

Well, if we consider what you said about the whole "must be lighted" property of the palantir, Pippin was in a dark place, so perhaps it's possible that Sauron couldn't see him too well. If Sauron could really see him as plain as day then he would've screeched to a halt after his first word and said "Who is this?" but instead he finished two whole sentences, and asked only after Pip didn't answer. Sauron couldn't have fully seen Pippin. That wouldn't make sense.