Because most of it is absolute rubbish. "My Immortal" is a great example of why most fanfiction sucks. Still, among the profusion of forced melodramatic dialogue'd "what if" romance furry yaoi crossover author self-implant self-torturing self-hating shite that populates much of the "fanfiction" corner of the internet, there are a few gems. I once heard about a now-successful author who got her stroke in writing from writing Star Wars fanfiction and putting it on the internet. Don't quite remember her name...the point is fanfiction is hated because roughly 90% of it blows goats.
What I find unfortunate isn't that most people have a rather low opinion of fanfiction. They should, considering some of the stuff I've read has been so bad it has literally given me a headache. I think it's unfortunate that the people who can't write for shit are able to cast their lot in with the people who can.
I write fanfiction meself. So does my girlfriend. Between us, I wouldn't say it tops Shakespeare, but it's not bad writing. See, there are certain things that just shouldn't have fanfiction written about them. I write Resident Evil fanfiction because I love the characters and, let's face it, there are holes in the plot that could probably have a decent-sized meteorite pass through them without so much as bending the paper. She re-imagines classic fairy tales, making them delightfully perverse and cynical (psychotic nymphomaniac Goldilocks is my favorite). Both of these work because the official canon is ambiguous. It allows almost anyone to add their own spin to the story. The results, in some cases, can be pretty interesting.