Microsoft charges Flip4Mac the privilege to watch/save/convert for sellign such a product. Not everything is free so pony up the money for the privilege of using Microsoft's GREAT proprietary video codec.
It sucks. Why do people use it.
Most likely because Windows machines can play it out of the box, and they come with a free and fairly easy to use encoder. Seeing as Microsoft Windows runs on the majority (i.e. 80 - 95% of computers, depending on whose numbers you trust) this is no small advantage.
A lot of people don't realise that there are alternatives, and most don't understand that there is a free and easy way to generate for instance Flash video: submit your video to YouTube and then download the result (which nowadays is actually a Flash video containing H.264 encoded video).
If you want more control you can always go to H.264 on your own, through ffmpeg (Mac or Linux) or StaxRip (Win 2000/XP), both free and potent applications.
Good Point!Uploading your video to a website in order to download said video again is easy to use? That ignores the fact that most people's upload bandwidth is tiny compared to their download bandwidth.
Sad, but true; excellent choice of words m8!Free (gratis) is more important to most users than Free (libre).