You can easily have two Finder windows open on the same folder, meaning you lose the immediate recognition that spatial mode gives you. My personal take - they should have two types of Finder window - a spatial "folder contents" window and a folder-browser (probably in column-view) that only shows folders and maybe a preview of the files within.
So you can navigate quickly/enter file-paths in the browser, but to actually use a folder, you enter spatial mode, so you have the instant recognition of where you are.
The problem is that there's no global switch to force Finder in spatial mode coming from anywhere, anytime. This results in a messy affair when suddenly a non-spatial Finder pops up because you never opened that folder directly and previously put it in spatial mode.
You're absolutely right. I don't have the citation on me right now, but spatial mode has been found to be easier to grasp for new users in every single test ever. The only reason it was dropped was because (1) Windows Explorer, (2) power users whined about too many open windows and (3) a lot of people got used to URLs opening in the same window thanks to web browsers, so people sought to apply the same principles to file browsers.
Spatial mode used to be default on GNOME for a long time. There, too, it was dropped because of the same reasons.
See also: http://en.wikipedia.org/wiki/Spatial_file_manager and http://www.bytebot.net/geekdocs/spatial-nautilus.html