This is a "hidden city" fare -- MUC is the "hidden" city on the SNA-LCY ticket.

Yes, the airlines have figured out that you might just get off the flight if SNA-MUC is more expensive than SNA-LCY via MUC. So any remaining flights on your itinerary will be cancelled, regardless of carrier. And they'll only check luggage to the final real city.

Practically speaking, you can only skip a leg if it's the last one on the ticket and you aren't checking any luggage.