When Gandalf enters Bag End for the first time, we see that Jackson is more than up to the technical challenge of turning normal sized actors* into hobbits.
In general, I think you’re best served sticking as closely to a classic as possible when adapting it to the screen. The only changes that should be made
Post-montage, we listen to Bilbo narrate a bit from his memoir, There and Back Again, giving the audience something they do need to know about, hobbits. (Of course,
Examples of bad filmmaking at the 4.56 mark. I’m sure Jackson can just blame it on the second unit director. He probably had this conversation at some point.