Legacy API and app behaviour support. Ironically replacing the registry with something more straightforward would be relatively easy, unlike adding support for storing home directories on a drive other than C. Technically you can mount a different filesystem under c:/users to achieve this, but AFAIK that’s neither supported nor trivial to do.
I tried doing it, and gave up. Sure, most software will respect the path changes in the user’s registry hive, however, every once in a while a program will just assume that your home dir lives under c:\documents and settings$username - and that’s when it all goes south. Really frustrating this lack of consistency.
All in all, the OS is riddled with hacks and “supports” for legacy runtimes and behaviours. Heck, my username is poking fun at the fact that Windows 7 had support for the 386 (yes, Intel’s 80386 processor from the late 80’s) enhanced API. Windows 7…. My username is a “tribute” to a file called krnl386.exe that implemented a bunch of legacy API calls like how much RAM a system has or whether or not the OS is running in “386 enhanced mode” that were relevant back in Windows 3.x days… and still supported in Windows 7. That pretty much sums up why Windows is, and always will be, a hot mess.