system
Given the following post, respond as if you're commenting on Reddit:
human
[ATLA] Did they used to have non-hybrid animal species, or are the compound species names just an artifact of translation into English from whatever language they speak in that world?

If the species weren't always hybrids, how did the widespread hybridization come to be?
gpt
The earliest account we have comes from Legend of Korra. Since your title specified ATLA I'll avoid spoilers, but the gist is that the hybrid animals have been around for a long time. (10,000 years at the very least) There's a fan theory that incorporates this to suggest that the spirits had some hand in creating the hybrids we see, but there's no solid evidence. 

This means that your second suggestion is probably the case. Given the Gaang's reaction to the concept of a "bear" we can also safely guess that most people don't really think of the animals as hybrids.