You haven’t read the book, have you? The failure of Sauron to prepare for the hobbits (compare to Star Wars’ evil empire’s failure to defend against a lone X-wing fighter) was something deeply woven into the story. He was looking for the ring but expected that the bearer would inevitably be captured by him, because he expected the bearer to be a human. He hadn’t counted on hobbits, which were so unambitious and incurious as to be largely immune to the ring’s power, and he hadn’t counted on Smeagal, the perverted hobbit, and his banal level of evil.
I believe that Sauron was intently looking for the ring throughout. And, that included hobbits. The riders were looking for hobbits at the Prancing Pony in Bree.
The reason he did not see it was the hobbits rarely used it due to their nature. Putting the ring on gave Sauron a connection to its location. Every time someone did that, Sauron zoomed in. The ring kept tempting Frodo, but the hobbits' nature gave him the ability to resist (with a little help from Samwise on occasion). And wasn't Smeagal one of the "river folk", considered a different, though similar, race than the hobbits?
OK, geek critical mass has been achieved. No matter which of us is right, we both need to get a life.
:-)
He expected the bearer to be powerful. Though he may have investigated hobbits in the search as perhaps having some knowledge or involvement necessary to finding it, he could not conceive that beings so weak and humble would in fact have the Ring.
[geek critical mass achieved, pulling in more geeks]