1 Adam: Want to join my Dungeons & Dragons campaign?
2 Jamie: Sure. Can I be a hobbit?
3 Adam: Well technically they're "halflings", but everyone knows they're just hobbits with the name changed to avoid referencing Lord of the Rings.
4 Jamie: My name will be "Bilbert".

Speculate all you want. You're all wrong. No, even you.

Bwahahahaha!

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2022-03-26 Rerun commentary: Halflings were originally called "hobbits" in both Chainmail (originally published in 1971), the tactical war game that inspired Dungeons & Dragons, and Dungeons & Dragons itself from its original publication in 1974. This early edition of D&D also included monsters named ents and balrogs.

Tactical Studies Rules, better known as TSR, the company that published these games, also published a board game called Battle of the Five Armies in 1975. The earlier references to hobbits had flown under the radar, but this board game was enough to provoke a cease and desist order from the Tolkien Estate, which also included a claim on rights to the names "hobbit", "ent", "balrog", and also "dwarf, elf, goblin, orc, and some others too" according to Gary Gygax.

TSR's legal team decided to drop publication of Battle of the Five Armies, and also to remove any reference to hobbits, ents, and balrogs from D&D (from the sixth printing in 1977) and from Chainmail (from the fifth edition in 1978). They chose to leave the terms "dwarf", "elf", "goblin", "orc" as they believed the Tolkien Estate did not have an enforceable claim on those terms.

So yes, what Adam says in panel 3 is historically accurate.