Why doesn't LEGO bring back old series as they were "in the day"
First, LEGO did at some point reissue some sets (the "legends" series), but then stopped doing so, and it's likely they found out it was not really that interesting to do.

The reasons why would be pure speculation, but at the very least building techniques and available parts do evolve in a way that older sets wouldn't be able to compete with recent ones. As Zhaph mentionned, horses are a very good example.

Also, don't forget that LEGO is producing toys and that kids are their main target audience. Ask a kid what's cooler, the new Kingdoms Joust or the yellow castle? Or even any cool castle set of the eighties? Why do all minifigs have the same stupid fixed smile? Why don't they have alternate faces on the back of their heads? Where are the animals? Granted, it's a bit of an exageration, but still.

They do take adults into account now, yes, but the "sheer amount of nostalgia" generated by re-issuing older sets may not be that big a market as we would believe. Even adults tend to be more in awe at newer sets (modular houses). I did buy the re-issue of the USS Constellation, and to be honest... I find nostalgia to be a bit overrated.

Then there's the whole problem of parts which are simply not in production any longer, and for which the cost of reproducing them would offset the potential benefits of reissuing sets. (In other words, don't expect monorails to be reissued ever).