Since 1992, when baseball became an olympic sport, the US has alway been able to field a team and, except for 2004 when it didn't qualify, it has been competitive. It's tied for 2nd with Japan for the number of medal finishes (3). They both fall behind Cuba which has 5. Even during the demonstration years of 1984 and 1988, the US placed 2nd and 1st respectively.
The real reason is what Steven posted in the body of his post: the IOC wants the MLB players to participate. Upon hearing that statement, many Americans assume that this just releases more Americans to play on an Olympic baseball teams. But, it releases other countries' citizens to play as well. Most people don't realize it, but 338 of the 1243 individuals on the 2012 MLB roster are from other countries. That's over 27%. There's 121 from the Dominican Republic alone. http://www.baseball-almanac.com/players/birthplace.php?y=2012
That's a country that's participated in Olympic baseball only once and didn't medal. I bet they could field a pretty good team out of 121 MLB players.
Simply put, the IOC (and other countries)feel that MLB is keeping the best world talent from participating in the Olympics.
Just my two cents,