charle97 has it almost exactly correct. It's not just that people want content logically seperated in storage but displayed on the same page (sidebars, guest blogs etc); they want that and they want to be able to manage both sets of posts from a single administrative login.
Yes, using multiple installations of WordPress it's possible to have multiple blogs; but management is more cumebrsome due to seperate logins (sure, you can use the same password for both WP installs, but if you ever clear your cookies -- or use a different computer -- you need to log in again to both sites). Moreover, the use of seperate logical blogs for creating a single output means that authors can be logically restricted from fiddling with one another's content. A sidebar guest blogger would not have the keys to the kingdom for the main blog content.
WordPress's original limitation was the use of a single loop to fetch, prepare and display posts. The new implementation of multiple loops solves one of the problems that multiple blogs handles: namely targetting specific sets of data for output in a specific place (sidebar, sticky posts, etc). Robust author permissions and permission delegation is the next issue that needs to be addressed.