The argument about the 'hobbits' was based on the shape of the wrist bones. Like other early hominids, and some great apes, the wrist bones were the type that alows for knuckle walking on all fours as well as grasping. This shape is not present in modern humans and so the conclusion reached was that these little skeletons represented a new sub-species of hominid. The fact that there were also small elephants and large Komodo dragons on Flores at the time does seem to bear out the theory of different rates of evolution on islands, however these are not small modern humans.
I too feel that it would be surprising if none of these ancient characteristics were to show up in modern humans. These 'hobbits' were alive only 12,000 years ago, and folk tales of the area tell of small people living in the forest. These stories are often repeated in other areas of the world where it seems that ancient humanoids must have flourished alongside modern humans. It seems unbelievable that the sort of hybridisation and migration mentioned in the article would not have occurred.
What does this theory do for the out of Africa theory?