One, the cable companies simply did not encourage them due to the amount of monthly rental fees associated with cable boxes. They make too much money with those boxes to promote an alternative solution. Second: the limitations of the card. Cables boxes cost more to the consumer, but they do offer a lot more features. The current implementation of Cable Cards only offer a one way communication stream and therefore cannot have the same interactive features like the on-screen guide or Video-on-Demand.
We think it is really the second part there. It is the lack of services that killed the Cable Card. Sure, the cable companies didn't help, but it was the downgrading feeling that kicked 'em to the wayside. Do you use a Cable Card in your HDTV?