Agreed, Google could probably do it better. But imagine maintaining separate indexes for each and every gmail acct and constantly updating those indexes. reMail used to do something similar to that.
Supposedly the issue is that they don't perform more computationally-expensive linguistic analysis during the indexing phase. If they tokenize each word but don't perform any stemming or lemmatization, for example, the result would be similar: only full-word non-substring matching.
As others have pointed out, its probably a cost-benefit decision by Google to not spare grid cycles on full-fledged linguistic analysis for individual's email accounts. Google CAN do better at it, as is evidenced by their web search index.