Gnomes get to wear sweet robes
http://wiki.project1999.com/Robe_of_the_Azure_Sky
Gnomes get tinkering.
Halflings have a cooler home town/newbie zone.
Halflings get 5% exp racial bonus (worthwhile until you hit 60, then it does nothing)
Halflings have wall look too (not as wide of a field of view as gnome, when naked, but there are illusory ways to expand it).
Halfling base starting stats (before 30 bonus points) +10 str, +5 sta, +10 agi, +5 dex, -10cha
(comparing base stats to Dwarf or Barb though, halflings and gnomes are seriously behind).