Perhaps not
overpowered, but they definitely make an outsized impact on what does and doesn't work in the format. I would go so far as to say the effects themselves are relatively harmless. Sure,
WoBaS will wound a minion twice and either kill it or prime it to be finished off by
Ranger's Bow, but
Mablung, Soldier of Gondor already did and better. It's stronger than not being able to do that at all, but only streamlines the deck a little bit. Merry's effect is perhaps stronger, though more indirectly. The average deck doesn't use it to bring back random tossed possessions, and remember that
Ecglaf allowed some of this in Towers.
Armory to some extent as well, and then
Mustering for Battle makes doing it without Merry at all pretty easy (though you'll probably only want to do it once per copy).
As you note, the "cost" is another issue. Healing up to 3 wounds every turn is a massive hit to indirect wounding strategies. Threats help but don't really compare, they mostly make wounding decks stronger against decks which
can't just wipe away 3 wounds a turn. This and the lack of Battleground sites are my only real complaints with the format
There are ways to cope - with varying degrees of effectiveness - for everyone, but having to cope at all is tough for these strategies.
Captured by the Ring is a bit of a boost across the board. A threat and putting Gollum in play is something almost anyone can benefit from, and wounding decks may be able to incorporate
They Stole It and
Nasty Treacherous Creature.
Evil-smelling Fens is great for a wide variety of decks.
Brought Back Alive is something I splash (along with
Uruk Hunter, not for his text but for his solid stats for when there are no Hobbits) in some Uruk-hai decks, even ones that don't necessarily care about Merry.
Frenzy works to some extent. Sauron Grind's threat of
Hate keeps most
UtWE exerts on other companions, though threats themselves aren't too hard to add for an extra kick. Towers actually saw the biggest buff to Grind decks with a bunch of 3-vitality trackers, and 11 strength is enough to feasibly win some skirmishes. Moria and a pure Southron archery probably struggle the most in the end, they were already kinda on the edge of viability.
I think a bigger problem is
Swordthain with
Merry's Sword.
Merry, Horticulturalist can be used to pull
Farmer Maggot, Chaser of Rascals and keep him healthy, then with
Escape you can use it twice in a turn. This is really specialized though, and vulnerable to wounds piling up on Merry or Farmer Maggot being discarded / killed (I always have a copy of
Fear in a Nazgul deck, and splash it in many decks with Enquea to deal with Elrond and
Vilya). Using
Swordthain's text gives him much more utility if you can find some way to get the sword back (
Ecglaf,
Mustering for Battle, and
Weapon Store are the easiest ones).
But being able to put 3+ exertions on minions in the maneuver phase is big. Obviously you neutralize any minions that exert themselves, and after that you make them Third Marshal fodder, or you can snipe a troublesome baddie with
Rohirrim Bow, or cancel the skirmish with
Rohirrim Helm. This also eliminates the concern for having a useless companion on the field -- what does it matter that one companion can't skirmish (though at 5 strength, he's not actually useless) when 7 companions can?
Merry's Sword specifically is why I'm keen on
Southron Troop sometimes, especially paired with
Southron Traveler to survive a
Rohirrim Bow. Though I'm finding that by the time my opponent plays their 7th companion it's too late for removing even the most important ones to do enough. Hard to say whether he actually is better than
Southron Commander or even
War Towers for the average deck.
Orophoin is right that the real cost is hand clog (though the twilight for replaying the Hobbit is there too, small as it may be). Since they won't discard the hobbit when reconciling with their FP or with their Shadow, that's up to 2 cards per turn that they're not drawing as a result (the initial card not drawn, plus not discarding it and reconciling another card at the end of the opponent's turn). Using it again adds more delay so on the 4th use, players might be a full 8 cards behind where they would otherwise be. It's a soft cost though, and one that is really difficult to capitalize on or even see for the opponent. 7 unknown cards aren't very different from 8. I have gradually noticed that I can be a little bolder against decks that pull one of the Hobbits back, and use my wounding Shadow to goad them into doing so rather than to really get kills. And after pulling back the Hobbit to hand, players are typically unwilling to move again.
So while I think King Standard in particular would be healthier without them, this is why I would say they're not overpowered: the Hobbits make these decks more consistent and streamlined, but slower on
both sides. Strong, slow FP are a good archetype I think. I'm okay facing an invincible opponent who can't make a double move except to 3 most of the time and perhaps to 9, and there are many decks that produce similar results. Those decks are the reason I bid to go first