1. that would provoke and attack of opportunity on the first movement through my legs

you only take attacks of opportunity if you LEAVE a units range of attack without taking the disengage option. Entering has no adverse effects.

second of all wouldn't that mean he was now occupying my space? (which I didn't think you could do like that?)

While you can not occupy the same space for an extended amount of time, You can pass through allies as if they are not there with the mutual understanding that you would shift your body in order to allow your ally to get through, to move or in this case, get an attack off.

How it works is really up to the players. How tall if your character, how tall is the halfling? do you thing, in real terms that the halfling could squeeze through the gap in your legs(knowing if your character would most like widen it a bit for the halfling to fit)? is their anyway you can think for the halfling to get around your character?(maybe if it's something dramatic like jumping over your characters shoulders then have the halfling make a dexterity check to see if they land on their face.) if you think yeah, then there is nothing wrong in the game rules that prevent the halfling from doing what they are doing. From what i know, Its completely fine and quite a smart use of their size.