It's just like saying why doesn't my Mac Mini Core Duo not work on OSX 10.7. It obviously won't handle it and Apple won't compromise on the user's experience, even if that means constraining them to a less app selection and functionality pool. Nothing to get angry about though, Apple's support with older products running new OS's is great (3GS still going strong). It's just anything else simply doesn't have enough processing oomph, RAM, and Graphical capabilities to run iOS 5.
Yes but it should of at least ran iOS 4, because the iPod touch 2 did and they had pretty similar specs.