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Why have a free PC Map-pack when you can charge $10 for it? (Hello, World at War). Why make it possible to create amazing Fallout 3 mods for free when you can charge $10 each? Nearly every RTS also has tools for creating gems like DOtA, yet Halo Wars is charging money for rulesets.
PC: we call them "free updates and mods".
Console: we call it "priced DLC".
Console games in general: legalese and closed environments. Everything has to work; can't have users messing with that.
A lot of the effort would fall on the developer to provide the tools, and the consumer to make the content.
Microsoft's big reason to put the kibosh on it is for $. They clean out on DLC.
Of course it's bullshit. Microsoft is just notorious for being control freaks with their properties and source code. Thankfully open source is slowly fighting back with Games For Windows failing and other applications on the PC getting more exposure. Don't expect to see that shit happen with the 360 though.
When Epic tried to bring this same concept to the Xbox with the release of UT3 on that console, there was just no way it could be done. Xbox is a "closed" system and everything pretty much has to go through Microsoft. Epic was able to offer the promise of DLC to Xbox (where they would package the mods and offer them as DLC on Xbox live), and I'm not sure what happened with that... but I know that very little is offered on Live for free. PS3 owners got a 1GB free DLC pack, but I don't know if anything ever was done for Xbox.
Essentially, the problem is that it's a closed system and therefore Microsoft is able to control content. I don't know that this would ever change unless MS provided an open web browser within the Xbox somewhere, and to be honest, I don't know that they would even want to do that.
(oh, and some of the user-created mods off the web for UT3 were really excellent... I'm really surprised that more games haven't offered this.)