Mustrum:
Your argument about stepping on toes is a double-edged sword. I frequently have played in small groups or groups where people are biased as to what they play (or worse, people that are afraid to play spellcasters as they seem more difficult). In these situations, the mystic theurge gives the group the option of having 1 spellcaster replace the standard 2 (obviously not quite as well), but that flexibility will be welcome in many of my groups.
Also, for larger groups there are usually an abundance of people who like to play spellcasters, and do 2 wizards step on each others' toes? The mystic theurge is like the bard of spellcasting, master of none, jack of all trades.
Gez (and others who think losing all of levels 4+8 is balanced):
Your argument seems to come from the assumption that a 20th level wizard (cleric, sorc, etc) has 9th level spells and a mystic theurge has double 8th level, or 9th and 8th. The comparison would be better if there were 10th level spells, because it only takes a 17th level single-classer to get 9th level spells, and then they keep acquiring more.
My point being, that while a wiz7/clr3/myt10 has access to 9th level spells, that access is far smaller than a 20th level wizard. The difference between casting Time Stop every battle or 1 battle a day is huge, just as the difference between being able to buff yourself with cleric spells or heal your friends in battle is huge. Of course I can use a 9th level slot for wish and wish for a raise dead no?
Lets try the comparison with limiting the mystic theurge to a max of 7th/7th or 8th/6th. My wizard is still casting Time Stop, but now the theurge cannot even match that. He has the versatility to do a lot of other stuff, but most of it I can mimic with wish. Mostly, he has more spells than me, but they are all weaker (substantially, you are in effect changing the 3 level disparity to a 5 level disparity with respect to caster level, spell penetration, and spell effect in general (for instance these theurges will never see the upper limit of a greater magic weapon or a magic vestment spell) which I think makes the combo almost too weak, not unplayable, but not balanced either).
I think I will do my best to stat out some contenders, though it may take some time.
Technik