Mostly because increasing DPI doesn't work universally. While there are only a few apps out there that don't respect DPI, even the majority of them that do don't really scale all that well. The font may increase but the corresponding chrome looks horrible, and I'd say there's about a 60% chance that any icons won't correspondingly scale. Don't get me started on web pages with fixed pixel height fonts rather than points or ems (FF's zoom functionality is getting better, but for a while was just as unreliable as DPI increase).

LCD dot pitches are in the 0.5-0.6mm range

Where are you seeing these ridiculously huge pixels advertised? I'm actively seeking larger dot pitch LCD monitors since they're easier on my eyes for longer periods of time, and the largest I've ever seen is .3. Most are right in the .27-.25 range, granted not as fine as a CRT but still hardly the double you're claiming.

Samsung T260HD for example (what I'm getting), is .282mm