They do. They add 120 to each player's ELO when queuing as a premade. The actual advantage you get from playing together ranges from much more than that (with a full team of players who coordinate well) to much less (a 2 man and a 3 man combined who don't coordinate well). We win almost every 5 man we play because we coordinate well, and none of us are that great individually so when we solo play our ELO drops.
Also, as I told Tom "Zileas" Cadwell, you can easily have a matchmaking algorithm that ensures you win 50% of the time but is not fun. If 50% of the time you're playing against hopeless newbs, and 50% of the time you're playing against the top guys, you'll win half but have fun on 0. LoL is not far from this.
LoL's matchmaking has 3 main problems that I can tell.
1. Radically different advantages to premades. Some premades get much more benefit than others. Starcraft 2 takes this into account by giving each unique premade its own rating. So if I play a 2v2 with my friend John, he and I will get a unique rating that doesn't affect matchups when I play 2v2s with my friend Chad. I'm not sure if this is an option for LoL given that it's often 5v5 (might work better on Treeline, which is 3v3) and a team is often comprised of one small premade and a few randoms, or 2 smaller premades.
2. Traction. They don't have enough people in the queue at any given point to create good matchups in a reasonable timeframe.
3. Elo. Elo ratings were meant for deterministic heads up matches. In chess, Elo works because the player who won simply played better.
LoL tries to compensate by determining why your team won or lost (and what part of that was your skill or lack thereof) when handing out the points. This is VERY hard to do well.