Hi,
I believe the reason was that floppies only held about 1.4 mb of information. In 1998 that was enough to hold documents, but not enough storage for one MP3. At the same time the Zip drive was making inroads with 100 mb of storage, but it was known for being effective at losing all your data if you dropped the disk. CD-R drives were still too expensive at that time but Apple knew they would be able to put them in the iMac within the year as costs went down. So, for documents small enough to fit on a floppy Apple figured the user could use the internet to transfer files, and for larger files there was the option to use an external Zip drive using USB 1.1.
I think Apple pulled the trigger too soon with the Floppy, but it all came out in the wash.
s.