Notice when you play a game on a console, it takes a lot longer to load then the same game on a PC? When you install a game on a PC, it's usually loading on all the level data, textures and sound effects to the hard drive, and it only "streams" the soundtracks and video from the disk. A console has to load all that data to its internal memory (RAM) each time you load a level, so it takes longer.
Also, like Toby said. A console only has one purpose in life, and thats to play games. (Although the new consoles such as PS3 and Xbox, do a lot more than that). Whereas a PC has to run the operating system and everything that comes with it while a game is running, so it makes sense to have most things available on a medium that has fast read/write times.
Apparently the whole "Games for Windows" platform that Microsoft is trying to push has a feature that allows games to run straight of the disk without installation. I don't like "Games for Windows" though, as it locks gamers into using Windows or the Xbox and doesn't allow for the other platforms (Mac, Linux, PS3, Wii etc..).
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