I think it'd add another use for the kennels, which is good. I'd like to see it for other pets, too, but until they have more uses, that'd be less interesting. Also, goblin breeding... *shudders* I don't think stable dwarves should like that job xD
In order to see what you're doing, you'd have to add creature descriptions, and they'd have to be made modular. I'm not sure when or if Toady had planned for this.
Anyway, this, and magical crossbreeding. Mix and match the body types, average various info in the raws, and tack the two names together. W00t. Something for the wizard tower game, perhaps, or else for places of great evil. I'm not sure if I should post my ideas for this, since I've already freaked out the CoffeeMUD crowd, but oh well. You'll all just have to deal with my creepiness
Certain traits would be more likely to survive the crossbreeding, intelligence amongst them. If the creatures are vastly incompatible, all bets are off - a squid and a rhino, for instance. This would be handled by marking the body types with different species groups - humanoid, mammilian, reptilian, avian, plant, demonic, etc. A gryffon crossed with a lion would therefore likely make more gryffons or more lions, or perhaps winged lions. If a humanoid crossed with a lion, you'd get a wemic, basically. It wouldn't be called a wemic, it'd be called a lion-dwarf, or an elf-lion, but it'd be compatible with real wemics.