Strictly a fashion thing, Patrick. The mountain bikers don’t want to look like roadies, so adopted the looser styles of skateboarders, with whom they have more in common with, anyway. I wear baggy shorts when bicycle touring, as they do indeed look less dorky than plastered-on Lycra shorts (which nicely accent my toned buttocks). Plus they have pockets, which can be handy. From a purely functional standpoint, the trouble with baggy shorts is that they can catch on branches and stuff sticking out from the side of a trail. But I can’t say that’s a huge headache.
As for the padding issue, my feeling is that you should get to a point where you don’t really care if you have much crotch padding or not. During the winter, for instance, I ride in tights, which don’t have padding. That’s a bit of a transition each fall, but not a huge one. Getting the saddle height right, using a good-quality saddle, and then getting used to it, all those things make padding to a certain extent superfluous. When touring or mountain biking I ride with Performance-brand baggies and they have a pretty good pad liner. The problem there is that pedaling a loaded touring bike prevents you from standing on the pedals (balance reasons) so the sit, sit, sit part gets wearisome. When mountain biking I find it much less of a problem, as I’m out of the saddle a lot, and sometimes completely off the bike for an unplanned rest.
Zoic’s Vigor shorts ($50) are very good. A little light on the padding, but from a performance standpoint that’s fine, as padding can absorb moisture. They always could be paired with padded undershorts, such as Andiamo’s Coolmax Padded Briefs ($22).
Remember, keep those cheeks together!