The problem comes from the way that you can stack parry (and that you take no damage at all when your parry is high).
They don't hit the hardest, but they don't have to expend resources not dying, so the can move into advantagous positons (in terms of stance in combat) so that they never get hit and have better than 1 in 12 odds of hitting.
Hmm… I dunno. A high Parry will only get you so far. They certainly won't "never" get hit. No matter how high your Parry is, the baddies also get a 1 in 12 chance of hitting you (and the good guys are often out-numbered so the bad guys tend to get more opportunities to roll attacks). Then, when the hobbit does get hit, he's much more likely to take a Wound. And all the while, his low damage output means he's being more of an annoyance than a real threat to the bad guys.
At least that's my take on it. Certainly one can't just dismiss hobbits (or any of the cultures) when it's time to draw the swords, but they didn't come off to me as noticeably better combatants.
I could be wrong, though; I've had a few hobbit players, but thus far none of them have tried to make their characters optimized for combat.