Because Instagram isn't really intended for sharing your DLSR-shot, desktop-processed labour-of-love photo. The compression, rescaling and colour mismanagement they apply to uploads should tell you that.

It's quite possibly the worst way on the Web to present photos-as-art yet photographers keep signing up to it.

I would put my money on they don't want to have to support server side image processing. Since their mobile apps all scale images client side its a huge cost savings vs having to support that server side.