Multi-classing should only be limited if one class is in violation of the other.
There shouldn't be a way to be an evil priest & a paladin following a goodly god even RP wise, you'd be in conflict w/ yourself! While I have no issues w/ 2 melee classes as a multi, story wise, would it make sense? The only way the above scenario works is if dual-classing is also introduced into the game (i.e. You level up as an evil priest to level 3-5, then switch to your new paladin class & can only use your old abilities after surpassing your old level w/ your new class. It works on paper, in a videogame, there's more complications).
Story wise, it is classic to have a formerly evil (or good) hero/villain to experience something & have them flip on their previous role.
In the old D&D rules of dual-classing. Multi-classing in the old 2nd Ed, maybe even 3rd Ed. rules would have had only non-humans could multiclass due to longevity of life but dual classing was available to humans. Balancing the game is easier as someone previously stated since this isn't a multi-player game. But then that brings up the way multi-classing is implemented. Should there be dual-classing in addition to multi-classing? Since this is an alternative world not subject to Gary Gygax's rules, it's up to the developer to define what multi-classing is & the rules for it.
I have no idea what newer edition rules are regarding multi-classing but the old games (IWD, BG, Torment, etc.) that we love are based on those generation rules. From what little I've seen of the newer rules, it just dumbs down the rules to open it to more people.
Great discussion, now if I can only get past character creation to play the game! (keep crashing to desktop =/)