An Employee Working 2 positions for the same company

1) A person may be simultaneously a W2 employee and 1099 contractor IF--and this is a big "if"--the 1099 position truly meets the criteria to be an independent contractor. You can find those criteria on both the U.S. Dept. of Labor and IRS websites and should review against the position, but in brief, an independent contractor is *independent*: the client hiring him does not tell him how to do the job; does not set fixed or defined hours for the job; does not provide his tools or materials; does not mandate where he has to do the work (sometimes the location is mandated by what is being done--e.g. an electrical contractor must go on site to fix an electrical problem there--but to the extent the work could be done elsewhere, the contractor can do it elsewhere). Most "contractors" are actually employees, since if somone is managed and works like an employee, they are an employee, regardless of what you and they want to call them or how you would prefer to pay them (or they prefer to be paid).
To give an example from an industry I worked in, publishing: if a graphic artist is given a book file, parameters, and a deadline and told to lay out the book, does the work wherever and whenever she wants using her own computer, then sends in a finished project for review, she could be considered an independent contractor. If the same artist is brought onsite to work at the company's workstation during hours set by the company, she is an employee, even if working on the same book.
2) The risk you have is that you misclassify the employee (call him an independent contractor when he is an employee) and he files a complaint at some time or brings a legal action, you could be ordered to pay him all back overtime; to pay the employer share of withholding; provide him with employee benefits; and possibly get hit with his legal fees (if he sued) or fines (if the department of labor acted). Therefore, if at all in doubt, keep it all under this W2 employment.