A lot of UGC is video. If uploading (or just storing) your videos in an industry-standard and very efficient format for free can get you in hot water, or require shady downloads of cracked / banned software, users are going to be unhappy, and would cry and protest. Remember the early days of mp3, or DivX / XviD, banning of VLC, etc.

You get a much wider and more loyal user base if you're smart enough not to enforce such silliness anymore.