Why do search engines weight domain names so high?

[surfgatinho]

<rant>
Every time I do as search and see blue-widgets.#*$! come up number one and the site has only been around a year I just want to scream.

Why do all the major search engines even look at the domain name at all?
They claim to be serious about linking buying but how can they justify the premium ranking of premium domain names?
</rant>

[maximillianos]

Statistically many premium domain names are owned and operated by legitimate companies.

So there is still a lot of value in owning a premium domain for your business. Not only for direct type in value, but SE value as well.

[surfgatinho]

Statistically many premium domain names are owned and operated by legitimate companies.

Yes, that's fine if it's a registered brand name.

I'm talking more about this example.

Domain name of region.? (tourist area) is sat on for years. Next thing it is bought by someone and a low content affiliate site is set up. Hey presto! It starts getting good rankings.

Worse examples are things like region-accommodation.?
Just because it says that in a domain name doesn't make these sites authorities.
What if you run a regional accommodation site with a brand name? You are much more likely to be a legitimate established company.

[maximillianos]

Sometimes I think it can also be related to lack of authoritative content for that search term. If Google can't determine a few big hitters, those with the matching domain name may get more juice.

Just something I notice when doing some searches.

[physics]

There are probably a lot of reasons but there is one that's often overlooked reason. Say you're starting a (small to medium business) site and you buy a domain name like CompanyNameOrSomething.com because you think it 'is appropriate' or 'sounds cool' or will be 'good for branding'. But the keyphrase you REALLY want to rank for is 'buy cheap widgets'. Well, when you submit your site to directories and get other 'random' or 'not-so-random' links you'll most likely get them in the form
CompanyNameOrSomething.com
or
CompanyNameOrSomething Inc
or
CompanyNameOrSomething Widgets
You can argue with directory editors but sometimes they won't want to change the title of the listing EVEN IF IT'S THE TITLE OF YOUR HOME PAGE.
BUT if your domain name has the keywords in it YOU'RE GOLDEN. All of your links automatically have the targeted key phrase text - you're very likely to get a link like
Buy Cheap Widgets
Score.

(p.s. this assumes your company is not well known - if it is then you want your domain to be the company name of course - but you should still have 'microsites' focused on your other target phrases with keyword domain names)