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There is also some casualness in the use of the terms "goblins" and "orcs". I think it's generally agreed that goblins are the smaller cousins, but the language isn't consistent. In any event, the point is that the term "orc" covers a variety of sub-types, some smaller than others. Frodo and Sam may have looked like one of the smaller variants.

Goblin and orc in Tolkien mean basically the same thing. One is Germanic, the other is Latin, although the Latin doesn't mean "goblin."

Tolkien uses goblin in The Hobbit and usually orc in The Lord of the Rings. An elf of Lorien shows us that the word orc is meant to be Sindarin when he whispers, "yrch!" (the plural form) to Frodo. So we have goblin as the word to represent the Westron and orc to represent the Sindarin.

We all know the line "goblins, hobgoblins, and orcs of the worst description" from The Hobbit. The One Ring has taken this, and some description of orcs in LR, to mean they're different breeds. I don't happen to agree with this terminology, but I can easily ignore the names and freely substitute goblin or orc wherever appropriate. I recognize the need of role-playing games to create a specific taxonomy of critters.

I notice this casual switching of names among people discussing Tolkien. For instance, people will freely talk about Esgaroth and the Lonely Mountain, or Lake-Town and Erebor, even though they're mixing languages. The One Ring does this too. I try to be a little more consistent—I usually use the English names, unless there are elves or wizards (both English words, by the way; c.f. eldar and istari) talking.

I believe that Tolkien noted somewhere that he used "goblin" as a translation of the Hobbits' term for the creatures and "Orc" for the term used by others.

Here's a good summary of the linguistic situation: http://tolkiengateway.net/wiki/Orcs#Etymology

It suggests I got the etymology backward: orc comes from Latin through Old English, while goblin comes from Anglo-French and is a Romance-derived word.

Maybe it'd be simpler to just use D&D's interpretation, which is orcs are size medium (human sized), and goblins are size small (Hobbit sized), and that's the only real difference.