Yes, you lose everything except skills and stats.
Even worse, if you gained 10 levels of psionic and then switched to priest, going from level 1 to level 2 priest would cost as much as going from level 10 to 11 would if you had stayed single class (that is, experience costs don't reset when you multi-class).
Unlike in previous Wizardries (apparently) and Wizards and Warriors, it makes very little sense to multi-class in Wizardry 8. There are some exceptions, though:
Some people like to switch to rogue, monk, or ninja for 1 level sometime early on -- this lets you gain the Stealth skill, which adds to AC and can be extremely useful, especially for characters like Faerie Bishops with extremely limited armor choices. While classed as a ninja, monk, or rogue, they then go through "Stealth training" -- which consists of putting the characters to be trained in the front, going into continuous combat mode, and letting easy creatures like Roaches whack against you for ridiculously long periods of time.
There are various tricks having to do with skills gained at 1st level. Depending on attribute scores and class, a character gains some skillpoints automatically at the first level they take in a class. I don't remember exactly how this works out (you could probably find more details in a FAQ or at Flamestryke's page), but if you're a hardcore min-maxer it's sometimes better to take a couple of first levels in other classes to improve your skills. I can't remember for sure, but I think that if you're making a multi-spellbook bishop it can be better to start a psionicist, then switch to mage for one level, and then to bishop at third level and stay there indefinitely. Again, don't quote me on that.
And then there are some more sensible skill issues that can make multi-classing worthwhile. For example, if you want to make a priestly warrior dual-wielding maces, you're best off starting as a priest for 1 level, which gives you mace skill and two spell picks, and then switch to lord, which gives you dual wielding (but no mace skill). The spell picks aren't wasted, because after its 5th level (your 6th level overall) the lord class learns priest spells. (Of course, you're really better off going with a straight Valkyrie than any kind of Lord, but that's a different issue.)
Finally, some classes sort of run out of steam after a while, and it can make sense to switch. For example, once you hit level 18 in bard and have 100 music skill, all instruments can be played. One of my favorite Wiz8 characters starts as a bard putting all stat points into strength and vitality, and all skill points into swords, close combat, and music. The vitality points result in plenty of stamina for playing instruments, and of course strength and vitality make this character a good tank. You'll be using Bloodlust to give you a berserk attack, and can play songs when enemies are at range (so the sword being cursed isn't a problem at all). Once you hit level 18, your Bard abilities are completely maxed out -- so at that point you switch to fighter, and stay there for the rest of the game. Now you no longer need to use Bloodlust to berserk, and you essentially have a high level fighter with great tanking stats, who (just by the way) can play every instrument in the game. This character is invaluable in the beginning (Bards rule early) and in the end of the game, when having a good fighter with a good sword is fantastic, and remains quite good throughout the midgame. Similarly, pure magic users (including bishops) have access to all spells by level 18, so if you were careful to save spell picks and make good use of books for low level spells, it's possible to have essentially reached the end of the class's usefulness by that point. One good option is a Faerie bishop who switches to ninja around level 18 or so -- maxed magic capabilities, and access to the Cane of Corpus, the best weapon in the game.
So, to summarize -- multi-classing is kind of complicated and not generally useful. However, it has some very specific uses and if you're smart about it can be a very powerful tool.
