> You have to read it as having a very unreliable narrator.

Perhaps even Bilbo himself. :) One can imagine him telling a heavily fictionalized version of his adventures to some impressionable young hobbits.

Indeed: the intro to The Lord of the Rings explains that previous editions of The Hobbit, where the ring was a gift rather, were Bilbo's original lie to cover up the theft. Perhaps that was all the influence of the Ring itself.

That's how I've always imagined it - The Hobbit as published is the story told as if intended for children (hobbit or otherwise), but the 'actual' in-universe events were just as dark and realistic as the tone of The Lord of the Rings.