Personally, I think it can, but others disagree. Then, there is unsupported hardware. X will run on it as well. This is because these machines are NuBus based, rather than PCI based. The issue isn't the processor but the architecture.
Older machines have different hardware - they are different computers.
Adding support for a model Macintosh means writing drivers for that model. More drivers means more work, which means more time. Apple has committed to a very aggressive release schedule for MacOS X, and has had to set their priorities. On the one hand, there is the issue of time. Supporting any hardware means more development time, and Apple has committed to a very tight release schedule for Rhapsody.