I bet if we called 'em "mutts" they wouldn't sound so cool.
The fine folks at Gamasutra have squeezed together an article about the roles of hybrid classes in MMOGs. It's a pretty interesting article, and well worth the read.
The standard solution to this problem can be summed up in the phrase "Jack of all trades, master of none". Hybrids are generally made less effective in each area than their parent classes, with the intent that they make up the deficiency with their abilities from other areas. The paladin mentioned above might not be able to survive as much damage as a knight, but they can heal other players and help them survive, something a knight could never do.
Read the whole hybrid/economic MMOG argument by clicking here.