I've got a hybrid (Trek 7500) and upgraded the seat (my bumm didn't like the stock seat) & handlebars (to trekking bars). I use the bike for commuting, grocery getting, and joy rides with a little utility cycling thrown in.

I live in a medium sized city with a lot of bike lanes and bike paths, decent roads, and a few hills. Overall, I feel a hybrid is a very effective mode of transportation for what I use it for. A road bike or a cross bike would be overkill, although someone with rougher terrain might want a cross bike. I first rode a MTB-converted to a commuter, but running on 2.25 tires just wasn't that efficient, in fact when I test rode a hybrid on 700cc tires I was shocked at the difference.

Two things you'll want to budget for: fenders and a rack. There not must-haves if you don't have the money for them right away, but they sure do make the ride nicer.