Also, they had mayors and stuff, a VERY clear class division and were technically under the rule of Gondor after the Northern Kingdom fell but Gondor didn't really have the resources or urge to do any ruling over there. Once Aragorn was in they were essentially an autonomous zone under military protection in exchange for maintaining the local roads and bridges.
I'm guessing the intent is they gradually diminished into the lil guys we know and Tolkien just didn't know much about bugs. Whether he was afraid of spiders was addressed by him in a letter, since both of his really popular books have giant spooky spiders. I guess he didn't have any specific fear of spiders, he wasn't a fan but wasn't bothered by them. He just had a rough idea for the whole ungoliant thing, the broad strokes came into The Hobbit spiders and then Shelob kinda reconnected it to the greater mythology.