[Rumil]

I wonder if the Balrog could alter its 'aspect' in the same way that Gandalf and Galadriel seem to have done?

Gandalf seems larger and more powerful during his argument with Bilbo, as does Galadriel when she's offered the ring. Perhaps this is a power of ringbearers and Maia to create the illusion of great size and cow the 'lesser' folk.

If that's right the Balrog could perhaps have normally been double elf height, but seemed larger to the hobbits.(I doubt it fooled Gandalf though).