I think it's mostly because JPEG is good enough. JPEG2000, for example, also provides perfectly acceptable performance and quality, with significantly-reduced file sizes. But unlike JPEG, JPEG2000 decoders aren't already available everywhere.
It's the fax-machine effect, JPEG will be around forever because everything, and I mean everything, that creates, processes, manipulates, and displays images, speaks JPEG. If Jobs was still alive and decided that from now on iWhatever's were only going to do JPEG2000 (and it's not just for file size reasons, image quality is also vastly improved), you can bet that we'd have a surge in JPEG2000 adoption as soon as the first JPEG2000-only iWhatever was released.
(Personally I'd opt for JPEG-XR, which is more flexible than JPEG2000, addressing the 20-odd-years' worth of issues that have emerged since the original JPEG first saw widespread adoption, but since it was developed by Microsoft I'm nervous even mentioning it here. You never saw these lines, move along, move along...).