[Mithadan]

So the phrase "In a hole in the ground there lived a Hobbit..." would be a bit of word play. In a hole in the ground there lived one who lives in holes in the ground...

I recall reading that in the late 19th or very early 20h Century there was a book about a diminutive people that was very popular among children. Some have suggested that this book may have inspired or prompted Tolkien's outline of what a Hobbit was.