There are millions of Palms out there, not to mention the zillions of other brands of PDAs and specialized ebook readers like the RocketBook. For one, there aren't enough of them. Few people are aware of the content that's out there now, and what's there is usually from unknown authors. With traditional publishing, publishers must be selective about their authors. Anyone can publish an ebook.
Buyers are therefore wary about spending their money on unknowns.
Security is another problem. Once an ebook is sold, that person could give it to others who could read it for free. This worries traditional publishers who envision a world where only one person buys the book but millions read it. My Mom and I exchange books we buy all the time. Once I've read it, it's just a file sitting on my hard drive.