Why do some arXiv preprints have increased line spacing?
I think the real underlying cause is just what Anonymous Mathematician said, that having a double-spaced version of a paper is more convenient for going through and making notes on a printed copy. But it's not just a phenomenon of the dark ages; many people still do this today during the revision process when a paper is being prepared for submission.

In fact, at least in physics (my field), the tradition of double-spacing is perpetuated by the fact that at least one of the major journal publishers' LaTeX class defaults to a preprint mode which sets the line spacing to double. It is possible to change this to single line spacing by passing a class option for the appropriate journal (pra, prb, prl, etc.), but many authors forget to do this - and somewhat understandably, I think, because their job is to do research, not to be proficient with LaTeX. I would imagine that a similar situation might arise with LaTeX classes used by other publishers and in other fields.

It's worth noting that arXiv recommends not submitting in double-spaced mode. But probably very few submitters have the patience to read through the instructions in their entirety.