Because they are often run by people who know very very very little about publishing...
I belong to a mailing list about supernatural and ghost fiction. There are a lot of short story writers in this field, some of whom publish primarily in small magazines (or even on their own websites). While some have published their stories through regular small presses, some have started using POD to publish their books. One of the members had published an anthology of ghost fiction with a small POD press. And he was pleased with the way he was treated by the original publisher. (He has asked me not to name any names.)
Then the original publisher was bought by another owner. (Victoria Strauss has warned us that this is one of the dangers of using POD presses, as well as e-book publishers -- lots of volatility.) So he and the other authors knew that the new owners would be keeping some books in their catalog and removing others. So he knew that might not want to keep his book in print. But he was surprised at the reasons they gave. First, they said that they had turned it down because readers want the books they read to be in only one genre. (Okaaay, I know publishers are wary of cross-genre work, but their claim is silly. How do they explain things like fantasy novels about private eyes or horror novels with elements of fantasy? Oh, riiiight, they probably don't know they exist.) So then he pointed out that all the stories were in one genre --supernatural fiction. And even stranger, this so-called publisher replied to say that they didn't think supernatural was a recognized genre, or at least not one recognized by "the main literary agencies."
Really!? Someone had better tell that to Peter Straub as he's probably wondering why his agent hasn't been returning his calls! Come to think of it, we'd better get out a ouija board and call H. P. Lovecraft, M. R. James, Algernon Blackwood, and many many others that their stories clearly don't exist! I suppose if he had told them that his stories were "horror," they would have said "Oh, that's OK then." But then again, they might have said something silly, like "Eww, what kinds of people read that crap?!" Or even "This can't be horror, there's no blood and gore in it!"
So keep this in mind before you decide to put your work in the hands of a POD publisher (or even a non-POD small press). Do you want you work touched by people who don't even realize that supernatural fiction is a genre?! Who knows what else they will not know about fiction (and nonfiction)? Let alone about publishing?
I hope he finds a better publisher next time! (I've told him about some boards he might find helpful here.)
P.S. If you think this doesn't belong on Bewares, please tell me. I'll move it to Take It Outside or the POD board or something. (Because we don't have a "Bad Idea" board.)