They don't actually. While they can cast a spell that does 1200 damage, in the same time a fighter can do 1200 damage with attacks, and the fighter can do it all day long while the wizard has a limited number of uses.
HP values in DDO are inflated over PnP and it tends to weaken the casters. (spell damage is inflated in DDO as well mind you... at mid levels the casters are the DPS power houses but that changes as you get into upper levels)
Why inflate HP? Because if you didn't fights, including the big epic confrontations would be over in about 5-6 seconds. You'd barely even know what happend in said fight. To make it feel like real time, yet stick with the basic D&D rules (more or less) they had to pad out fight times by making monsters take many more shots to fell, especially the "bosses" which can have 100K HP or more.
There is no doubt it distorts the game, but that is what happens when you take a turn based rule set where playing a fight can take two hours real time, and make an action paced real time multiplayer video game from it.
I've played D&D for 20+ years and I find that while it varies here and there in the specifics, and the DDO campaign is very monty hall like, the overall feel of the classes and strategies plays out just about right. You can make tanks and glass cannons, and sneaky assassins and all the usual archetypes. Even archers work well here once you sort out how to work them up.
A lot of the decisions make some sense if you keep in mind the vision for the game. D&D rules and flavor in a fast paced action game trying to analog attacks to in game animations and events over a huge international computer network with many thousands of players playing multiple hours a day. The home town D&D game in your parlor is simply a very different situation and experience. Folks often point to Neverwinter Nights as a counter example, and its a good game, but they also changed the D&D rules significantly to suit that game's challenges and its pace was significantly slower than DDO, let you pause combat, and so forth. Its a great version of D&D (and I have played lots on computers) but I think DDO also does a pretty bang up job that appeals to a wider audience and yet delivers a lot of the core game mechanics in spirit if not in strict adherence.