#3 Species is only different if the DNA is not compatible. However, in situations like the Galapagos adaptations, you might end up with very different looking breeds that can still mate, or separate species.
There is a good possibility that these "Hobbits" could be either, created by the same "island effect" that results in "punctuated equilibrium", or adaptation to an environment in a small number of generations.
Traditions of such small people are extensive in the Pacific, even including the Hawaiian island of Kauai, where they were called "Menehana". The Menehana mythology comes across as odd, as mythologies go, as they are not seen as good or evil, or particularly magical, just "lucky". That is, the native Hawaiians had a realistic tradition about them, which is what you would expect if at some point they had actually known living Menehana.
In Bibical times in the Middle East, there were several legends of unusual type people. Goliath, who fought David, was alleged to be one of the last of a band of such giants, as was one king who ruled a nearby land.
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