iPhone OS does supports multitasking - having multiple concurrent threads executing. What is disallowed is background processing for third party applications that do not own the view.
As Apple has not given official reasoning, the best we can do is an educated guess. The iPhone is constrained device compared to PC: it does not have MMU nor abundant secondary storage to fall back to. For everything it does you have to pay in watts from the limited capacity of battery. To create great product you have to make engineering tradeoffs.
The no-background-processing-for-apps policy constraints developers, but leads to following end user percievable benefits:
- accountability - the battery is drained by the app you are running. Users understand what running 3D games will do to their uptime. No third party app can hang in the background a do a busy waiting. This allows Apple to aggressively power down hardware components and conserve the battery life.
- responsiveness - apps launch, run and quit as quickly as possible, because the foreground app basically owns the hardware, with the OS providing services and keeping the watchful eye from behind. When the app is done, OS can free all its associated resources and get ready to serve next users request.
- stability - for the tasks that truly require background processing, like background music playback in iPod app, Apple has the source code. Those critical parts are under strictest quality control.
From where I stand, Apple's decision makes perfect sense. Even Microsoft with Windows Phone 7 Series understood this.
The Ten Myths of Apple's iPad: 9. It can't multitask is perfect video response to this question. Link via Brandon.