That's how I read it and it seemed like a pretty good solution to me. Or as a possible approach to modding the game, in the event that Larian doesn't touch anything and just pushes it out the door this way.
I think they are using the same basic phenotype (just with different heads) for their Goblins too, even though we don't have access to those as a PC. It also feels like they are having everyone stand at like 1.5 meters tall, because their camera framing is currently so rigid, and that's just what it takes not to have the figure cropping out of view constantly in their standard dialog cutscenes. I'd rather they come up with a more dynamic camera scheme for that and have the camera key off the model's line of sight, rather than transforming the models to suit the static camera.
Striving for realism (like say with skull sizes) is a fun mental exercise, but we're not this discerning in other areas. I mean we have giant spiders, even though their exoskeletons are completely impossible by real world standards. The giant weta clocks in at what like 3 ounces at most? I mean its big, but it's not anywhere near "giant spider in D&D" levels of big. Same deal for dragons that could actually fly, or imps with tiny wings hovering about. The answer to these issues in D&D is always pretty much the same, e.g. fantasy magic, and everyone just nods.
I agree most of the stuff we've been discussing comes down to preference, whether one prefers a Lidda or a Bilbo, or how far the BG3 depictions stray from other depictions in the source material. I think having a different phenotype based whether they're Lightfoot or Stoutheart or whatnot is also a viable approach. The main concern though is that, if they are already struggling this hard to animate Dwarves, creating yet more unique wireframes with different proportions that then have to be animated independently might be problems. Hence the expedient of just shrinking down existing assets, for something that is workable. I'd guess the Human animated models use some form of motion capture as the basis, (whether Larian is actually building that, or just using something more off the shelf, I couldn't say) but it appears that the Human animations work reasonably well. I don't think they should ashcan the work they've already done animating Halfling models, but just shift it to the Dwarves.
I don't really like the 5e art that I've seen for Halflings. I think its annoying that they spent 2 and a half editions revamping the Halfling look in the art direction, only to completely reverse course and be all retro with massive domes in 5e. We can see from the mines what the Gnomes, Dwarves and Halflings will probably end up looking like in BG3, but I just think its a bummer they can't make a place for the other look, cause I definitely preferred it.
I would take a Ghostwise Halfling sub-race with a distinct phenotype more at 1:2 and call it even I guess, if they'd give us that at least.
