Yes they can.. unless an angry mob whose life savings they just stole does not overthrow them. There are limits on how much you can do this and stay in power, they don't figure in the economics calculations but they do exist in real life.
Moody's in its latest assessment says:
"The global role of the dollar, which underpins continued demand for U.S. dollar assets, .... provides unmatched access to financing, meaning that the U.S. government can support higher debt levels than other governments"
http://economix.blogs.nytimes.com/2011/08/08/moodys-why-the-...
It's right there in the terminology: money supply. What happens when the quantity supplied of a good increases? With a constant quantity demanded, the price goes down. So it is here: if the quantity of money supplied increases, the value of that money decreases.
Thus, paying one's debts with inflated currency means that you're giving yourself a discount off the amount you owed. And that creates lower safety/willingness to lend.