Google launched the nofollow tag to combat forum spam and comment spam. When Google announced nofollow, they tried to convince SEO savvy webmasters to use it by telling them that it would help the site conserve their pagerank while at the same time telling Google not to trust user generated links.
I think it was the law of unintended consequences. Google saw that only a small percentage of forums and blogs were using it for the intended purpose. A whole lot of webmasters started using on all their external links to conserve pagerank, or on internal links to sculpt pagerank. At that point, Google took away the carrot and made it so that nofollow doesn't conserve pagerank. Now there is little incentive to use the tag other than to make Google happy.