You mean we haven't figured out a material that both dampens sound and is fire resistant?
Being as how the former quality is pretty easy, I find this hard to believe.
In fact, if you ever DIY some acoustic gobos or panels, rockwool insulation is about the best material you can find at the hardware store. But like another comment mentioned there are other concerns in commercial spaces, like cleaning/dusting.
The way the building code is written doesn't explicitly ban any material from walls/ceilings, but rather sets the constraints on the performance of the material when exposed to heat. There are higher limits for walls/ceilings than for floors because flames climb. Wall coverings (including wall paper and its glue) have to be flame retardant to meet code. There have been some infamous fires in the past, which is why this code exists (building codes are written in blood, as they say).
Most carpet doesn't go on walls, so it doesn't meet code, unlike wallpaper. And building inspectors are conservative people that are unlikely to permit you to do anything weird, even if you can prove by the letter of the IBC that some material is up to snuff.
(1) https://codes.iccsafe.org/content/IBC2021P2/chapter-8-interi...
Scroll down to see the details on wall textiles, specifically.
This is jurisdiction-dependent. Not all jurisdictions in the US, for example, have adopted the IBC, and it's not uncommon to find carpeted walls in movie theaters.
Super dangerous and illegal, too.
The reason that professionals don't do this is because no one will permit it, not because there's some scam on acoustic foam and diffusers... well there is but it's not the acousticians' fault. It's a massive fire hazard.