In LOTRO, level 65 characters have a very limited selection of dungeons - three level-appropriate small group dungeons, a single full group dungeon, and a single raid. The early story of the EQ2 expansion is whether there was enough content to go around in an expansion that launched with fewer zones than the last expansion that raised that game's level cap. In that context, Ferrel asks why it's worth raising the level cap of an MMORPG. After all, these problems can be directly attributed to the fact that raising the cap "dramatically reduces valid and usable content for players at the max level." Why bother if all the developers aren't even going to offer new spells and abilities?
Variety is the enemy of consensus
One of the key reasons why the WoW automated group finder has been successful is that the system specifically pushes players to agree to run a random dungeon. If there are three players in the queue who insist on one dungeon, a single player who demands a second, and a third player who will only join something else, no one gets a group. The random dungeon finder may compromise on a dungeon that NONE of these players would have chosen on their own, but at least they're doing something instead of sitting around waiting for a queue to pop.
In games that do not have such a system in place yet, variety is the enemy of players ever actually getting to do anything that requires a group. The more options, the harder it will be to broker a compromise group. On top of that, player preferences will rapidly trend towards the dungeon that offers the best reward/time ratio, leaving the rest of the content underused and hard to find a group to complete.
This problem is further exacerbated by the not-so-horizontal progression that is the gear grind. Players have repeatedly demonstrated extremely limited interest in running content that does not offer their characters gear upgrades. So-called casual raiding guilds, whose less strict requirements are more likely to result in players with a wide range of dedication/attendance, are especially likely to get hit with this problem. The leading edge of the guild finishes a dungeon and decides that they don't want to waste progression time by leaving it on the calendar, as the lagging edge of the guild protests that they still need the old dungeon for the gear upgrades. Outside of guilds, this manifests itself in the form of demanding group members who overgear the instance in question to ensure a quick and smooth ride to the finish.
Ask not what your newbie can do for you...
What brings this issue to the top of developers' priority lists is the plight of the newbie. Players are especially disinterested in running content that their characters do not need for complete strangers. New players, unless they were brought directly into a guild by offline friends, are strangers to everyone on the server.
Ask yourself a question: how many hours in the last week have you devoted to running content that does not offer you personally any rewards with one or more complete strangers in your group? If your answer is non-zero, is it typical of your guild? Your server? If you (yes you personally) answered zero, then why should anyone else devote more time?
At the end of the day, telling players to be patient with camping the LFG channels all day in the hopes of finding a group that will not throw them out over their gear is not a viable solution to the problem of getting newbies ready for group content. I've spent entire evenings on such efforts, and it's really not any fun. The two options that developers have tried to date to try and cut down the size of this mountain are literal bribes (as with WoW's dungeon finder) to make raiders want to run the trivial content, or a deliberately induced bottleneck.
If you increase the cap and only have half a dozen dungeons available at the new one, everyone - veteran, alt, and newbie - ends up in those few dungeons, dramatically reducing the time it takes to get consensus on a dungeon run. That, more than anything else, is why games raise the level cap and remove content from circulation, even at times when they do not have enough content. Players will not take care of the newbie unless they are forced to, and that tragedy of the commons would ultimately leave group content to wither and die as players who leave through attrition cannot be replaced.