That original appeal is largely spent by this point. You can see where it's moving when you compare visual depictions from the 70 and 80s to say the Jackson films or the more recent stuff getting pushed out the door under the D&D banner.
I think its fair to say that Tolkien (and the tales he based his material on) were giving a mythic etiology for the kinds of short-statured humans who have always existed in the real world, and particularly notable in the entertainment industry.
Initially the conception in D&D was probably to have Achon-dwarfism represented by the "Dwarves" (think Willow or Tyrion, old Hollywood little-people) whereas Proportional-dwarfism, primordial or Seckels is represented more by the "Halflings" (think General Tom Thumb
as the most famous example historically.)
Whether or not it was fucked up to make those types fantastical e.g. different races than "Human" in the first place, is probably something that no one at Wizards really wants to address head on. They're probably relieved that the issue is bound to get way less attention than the more fraught Racial stuff with Drow or Half-Orcs, but it's kind of a similar situation. I honestly have no clue how many D&D players are little people, or if they even care about how these depictions are framed out. I mean I'd assume they do, but I don't know for sure. To me it seems like both races of shorties in BG3 seem to be riffs on the Achon type, but without fully going there. Having one D&D Race following that proportional model is probably sufficient, and Dwarves seem most appropriate for that to me, though if they need a second it should be Gnomes in my view. They should do something a little different for Halflings.
I think many players like having Dwarves and Halflings around, but I would be curious to see how their popularity measures as a main PC choice in this game. Having stuff exist mainly as a token, but not being used kinda defeats the purpose a bit. I think there may also be a subtle gender preference thing going on, where Dwarves are more appealing to men and Halflings to women (to play as a PC I mean) but that's totally speculative, based more on the beard thing, and I don't want to to introduce too many hotbutton things into one post here. Suffice it to say, that I think Halflings would be a considerably more popular choice if they followed the proportionality I suggested in the image from the post above just cause it would look rather different. That's just a hypothesis though. I could be wrong, but that's what my gut tells me. And while I'm there with my gut, having a heavy-set racial phenotype also strikes me as rather problematic and unnecessary. I should be able to play a portly Elf or rail thin Halfling if I want to, descriptions in Tolkien notwithstanding. They should separate those choices into a separate char creation field, even if the defaults might suggest one or the other. There should be a way to change the physical build on any race available as a PC choice, Halflings included.
To say it another way, I think if they want to do visual depictions that suggest Achonoroplasia, like say in a kind of nod to the Hollywood fantasy inheritance and legacy, that it could be an option among the human phenotypes, along with one at the other end of the spectrum for gigantism. The fantasy races Dwarves, Gnomes, Halflings should I think have a more otherworldly appearance to distinguish them. Failing that, then I guess give the Dwarves a more Achon vibe, and the Halflings more like Thumb, because to me I think that's where it came from. But I don't know that D&D really wants to go there. (Interesting Off topic on topic
Instead was thinking they could just make the Halflings key off the Humans at 1:2 and optionally the gnomes key off Dwarves. More for simplicity of execution. Like so they could just scale the animations and models of 2 sets to create 4, and still give a distinct visual read.
Or I don't care maybe invert it? So the Gnomes follow Human/Half elf proportions? I mean in Tolkien Gnomes are just Noldor Elves so it kinda works. But then maybe they catch another lawsuit going that way lol. I think the first way would be easier and more in line with 5e depictions I've just been looking up now. I always kinda pictured Gnomes as the tiniest in 2e. But its more about making them easier to tell apart at the glance. Since the scale is what gives them the quick read and right now its like huge for the Halflings relative to the Humans. In Tolkien the Hobbits get taller overtime until eventually they are just like humans in later ages, so to me it makes sense. Their skulls need to be smaller than the Human models though, or it doesn't read right to me at all.
Lee shows it well, which one is the Bilbo? That's what I'm saying. Right now the Halflings look hard to distinguish from the Dwarves.