re: mutual funds that invest in mutual funds...

Lots of funds do this, especially with "target retirement" funds or "international" funds. They simply invest in a set ratio of other funds in the same family.

I've never run across double-dipping as you describe though. Mostly it's a way for someone else to set the allocation for you. I prefer more flexibility than that but if you want someone else to make that decision I don't see anything wrong with it.