For the nobility at that time, maintaining the purity of their line was of utmost importance. The interbreeding between the family members (Austrian and Spanish lines) were to make sure that the power and wealth is kept within, not to mention that the effects of this tradition doesn't exactly show immediately and dramatically. Here's a paper regarding the role of inbreeding in the Spanish Habsburgs that led to their extinction.

Edit: I did a quick search. A similar question has been asked 8 months ago with more concise answers. I hope that would satisfy you more. http://www.reddit.com/r/AskHistorians/comments/1obgqr/were_the_habsburgs_aware_about_the_dangers_of/