Why are most BSOs mountain bikes?
When shopping for BSO bikes, people are just looking for a recreational ride that is a once in while, which leads them to focus on the sticker price.  Looking at a mountain bike they then get to thinking "Hey, I can ride this around town.  I can take it off roading if I wanted too.", so more bang for their buck.

They also tend to look at the other components of the bike, hard narrow saddles just look uncomfortable, drop bars make one think they need to lay down to ride, thin narrow tires surely can't be a as comfortable as fat tires, and "why is there no tread pattern on this tire, it is just for nice weather racing".