Why don't static objects detect collisions with other static objects? I have a static bullet with the collision bounds set to a cube. I also have a static target with the collision bounds set to cube.
my bullet has the following logic setup:  
my target has this logic setup:   

Both have very basic logic, and it works if I set my bullet to rigid body or dynamic.
however, if I set my bullet to static, when I start the game engine, the bullet passes through the target and out the other side with the target remaining in place. Why is it that static objects can't detect collisions with other static objects?
It is that way by design - most likely for performance. See the Static Physics Object page.

Static objects in the Blender Game Engine do not automatically react to physics, including gravity and collisions. Even if hit by the force of a speeding 18-wheeler truck, it will remain unresponsive in terms of location, rotation, or deformation.
It will, however, give collision reactions. Objects will bounce off of Static Objects, and rotational inertia will transfer to objects capable of rotating (that is, Rigid Body Objects will spin in response, though Dynamic Objects will not).