[The Might]

It wasn't the Breelanders that gave them the Shire, it was Argeleb II, tenth King of Arthedain, that allowed two Hobbits from Bree, Marcho and Blanco to settle in the Shire, on the condition that they [font=Verdana][size=-1]acknowledge his rule, speed his messengers, and repair the roads and bridges. They then lead a large group of Hobbits westward and claimed the area that later became The Shire.
I like Child's idea, makes sense that Hobbits somehow adapted and became smaller. It could be that it's because of their ability to hide so well, which is again mentioned in the foreword to LotR, Of Hobbits, that they managed to stay away from the darkness. It is clear that are much closer to nature as normal Men, maybe because of the need to hide and seek protection in their natural environment.
It makes sense that they slowly made their way west as Sauron fled east to rebuild his physical form after losing the Ring. This they did again, in T.A. 1050 when some of the Hobbits crossed the Misty Mountains after Sauron came to Dol Guldur and a shadow fell upon Mirkwood.
[/size][/font]