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Because the programmers writing it are doing it as a labor of love. And since it's under the GPL license they can use existing art, such as Fbreader as a starting point. (They don't have to totally reinvent the wheel.)
There are working answers, even commercial ones. For example, I have a Cybook Gen 1 (LCD) running WinCE 5.0 as an OS and Mu-book as it's reader. Both are commercial software, and together they will read .txt, RTF, HTML, and I think non-DRMed mobi. Pictures, italics, bold, call to other files, no problem. But it cost money. Now maybe you refresh screen problems working with e-ink, I don't know (booting and such) and that was available in 2006.
The Hanlin software isn't bad, and I don't gain much more from the current OpenInkpot, but I like it better. The rest of the e-book world doesn't give a Dead Rat's Nether Region about good firmware, they're too busy trying to build Monopolies... (and yes I mean Kindle, Sony, Cool Reader, CyBook, Jetbook, et. al.)
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