The cottages were built in 1935 as part of the California Pacific International Exposition. The exposition was formed as a way to help boost the local economy during the Great Depression. The organization was said to be non-political, non-religious, and non-profit. It appears that these cottages were used early on as a platform to exploit little people.
The traveling show was called Midget Village and there are plenty of photos to back this up. I obviously can't speak for these actors, but I do know that many actors for these types of events known as "freak shows" were treated terribly during those times. The actors were treated as objects of interest and entertainment where crowds would flocked to see them exhibited.
This does help sway in favor of the Munchkin House legend being true though.
During World War II, the buildings were used as living quarters for non-commissioned naval officers. However, following the war, the buildings were rededicated for the House of Pacific Relations and continue to present cultural programs today.
Today the cottages house 32 groups promoting multicultural goodwill and understanding through educational and cultural programs. Every Sunday from noon-4pm every, a different country is showcased where they present traditions from their land. March through October starting at 2 you can experience featured music, dance, traditional costumes, arts, crafts and ethnic foods.
Personal Experience: I never tire of Balboa Park. There is always something going on it seems and if it's tranquility you're after, then go at night, which is equally pleasurable. The international homes are open to the public every Sunday from noon to 4. Even if they're not open it's still a wonderful place to explore and photography, maybe even have a picnic. Each little home represents a different country and are filled with items and food from each country. It's a lot of fun! We came early the day I decided to photograph so I didn't get any photos of it popping off (yet). I will be back another day and update!