The reason is simple, the drops are balanced around the AH, ergo, Blizzard has no freedom to touch the game drops without thinking first how is going to affect the AH economy, therefore, how much money they will lose if they do that.
Basically, Bashiok said, that they cant let the AH out of the equation when they balance how fast a player should gear up.
So, in other words, they are balancing the drops taking into account the AH, which is of course a logical decision, the problem is, Blizzard didnt take into account players who don't use the AH, ergo, hurting their drops.
Look at what they are doing in 1.05 letting affixes roll on any ilvl of gear after monster power 1
You will be able to find bundles of gear (most of it will suck like now) but everything is worth identifying
You don't need the AH now, its just faster to sell the good gear you find and buy the good gear you didn't find then trade chat.
I do like the idea of more account bound gear, or unlocked gear.
As in until you beat act 2 you can't use act 2 gear.
Or if monster level was tied to beating the game on a lower monster level and gear from a monster level could only be used by people on that monster level.
However people don't like that sort of stuff and just want to be an OP face rolling machine.
As an aside monster power is going to screw up public games as I for one will do NEVER touch them (which i don't do now so I guess its no real change)
(they impliment some form of min gear lvl requirements like wow did for open monster power games)
I like the AH but I also understand the concern by others. I personally think a simple fix such as adding personal games list will actually help a lot, as it will help item to item trading which I believe is as important in the game as the item hunt.
The game is broken because the system is base on dps.
Basically, all race play exactly the same, bluff dps, life and resist.
All end game build and items are the same. Best barb with Ik set. Best monk with inna, dh with nat. Wd/wiz with zuni
and how was diablo 2 different?
if you didnt have damage, life, and resist you were a gonner in D2.
If you don't know how Diablo 2 is different then guess you have not play the game.
Diablo 2 is not gear dependent while Diablo 3 is. Not only D3 is gears dependent, you have to get the right stats. For weapon, it has to be DPS and Crit Dmg. Then leech. For armor, it has to be Main, life and resist.
Diablo 2 you can fight monster naked. D3, you walk out naked and you deal 10 damage.
People don't get me wrong. I think that AH is needed, i am using it and i never talked about removing it from the game. The point i am trying to make out is that Diablo series was about grinding and the way it turned out in D3, you can make it to level 60 and then forget the grinding aspect by buying all your gear with real money... Of course, when you see it from a PVE aspect, it's not that much game ruining. On the other hand, you can definetly see that the PVP aspect is much affected by this. People buying the gear from AH have an upper hand over people investing a lot of time into the game. The people playing the game most should be the ones rewarded, not the people spending the most money into the game.
Some people pointed this out as a flaw in the games design. By introducing bind on player end gear, you can correct this flaw while still maintaining the pros of the AH and not having to worry about 3rd party making profit out of the game.