I think the biggest reason was the desire to cram more data onto the disk. Uncompressed redbook CD audio fills up your whole disc... fast.

It's also hard (impossible? I think?) to do seamless looping playback with CD audio if you're just streaming redbook because the laser has to seek back to the beginning of the track. This is a common issue in games where the background music for a level might be e.g. 1:30 of looping music.

Lastly, storing naked redbook audio on the discs may have been been seen as affecting game CD soundtrack sales, which were often a pretty big deal in Japan.