"A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines." - Ralph Waldo Emerson, Self-Reliance
Like most of the monsters we've looked at, the hobgoblin displays a tremendous duality in its portrayal in myth and legend. In most of the pre-Puritan works, we see hobgoblins primarily as smaller, mischievous and sometimes helpful faeries. This got turned around sometime after A Midsummer Night's Dream; and hobgoblins became more vicious and demonic, wicked goblin spirits. Tolkien made them explicitly larger goblins, though this is somewhat inconsistent since goblins are just smaller orcs. OD&D ultimately stuck them in the cursus honorum of humanoids above orcs and below gnolls, with 1+1 HD, and later detailed them as being basically taller, stronger, more militaristic goblins. Hence, our stereotypical hobgoblin.
But to Shakespeare. Robin Good-fellow, or Puck, is explicitly called a hobgoblin in Midsummer. This is a powerful prankster character, more at home with fae creatures such as pixies and nixies than among the ranks of the humanoids. Puck was always a favorite of mine. Trickster characters can be annoying in RPGs, particularly if you make them a PC race, but if handled well they can be an interesting role-playing challenge. Puck was not just doing jokes, he was manipulating the characters, to the point where his pranks actually wind up driving the play. A well used prankster should be similar, moving the game in directions the players wouldn't foresee - but not as a limiting factor or railroading device.
So what do these kinds of hobgoblins have to do with one another? That's where the fun is, of course. As I have it, the original "true" hobgoblins were a servitor race kept by powerful fae beings, like Oberon and Titania of Midsummer. In some way - perhaps as part of an exchange, or as prisoners of war - some hobgoblins were captured by powerful demons and Chaos lords. They set out to corrupt the hobgoblins, running them through a breeding program with humans, orcs, beastmen, goblins, you name it - to create what was ultimately a strong, militaristic but fiercely competitive race of humanoids.
In a few rare hobgoblins, the fae strain of their nature shows out. This should be well under 10% of the population. In addition to acting as normal hobgoblins or even the level of a hobgoblin king, the fae-touched hobgoblins will have certain innate spell abilities. This is both a gift and a danger; on the one hand, some of these hobgoblins have the merry nature of true hobgoblins and do not fit into the society that they are born into. These often are culled before they reach maturity and are considered a shame by the hobgoblin race. A rare few make a niche for themselves by turning their pranks into the deadly cunning needed to create and maintain traps and hazards. Others gain some of the abilities of a true hobgoblin, such as faerie fire, invisibility or - in extreme cases - the polymorph type spells, but retain the war-spirit of hobgoblins. These are in many ways the most dangerous, and frequently rise to the rank of hobgoblin kings. No sensible hobgoblin will speak of the link of a powerful king to their fae progenitors, but it is often known in hushed tones.
All fae-touched hobgoblins have something odd about them to distinguish them, whether it is an excessive amount of body hair (almost furry), or cat-like eyes, extra digits, and so on. Additionally they have an allergy to cold iron, and any pure iron weapons or implements (but not steel, which is an alloy of iron) will do double damage to them on a successful hit.
That finishes the original D&D cursus honorum of humanoids. I'm not going to jump right to the bugbear, which extended it in Greyhawk, but in time I'll get to it.