Why does Dinur's proof of the PCP theorem fail to work for unique games?
The powering step fails. After the powering, each vertex is labeled with a neighborhood of the original graph. each edge checks that its endpoints agree on the intersection of their neighborhoods, and that this labeling satisfies the edges in this intersection. However, the edge cannot check anything about part of the labeling that lies outside the intersection of the neighborhoods, and therefore cannot enforce the uniqueness property.