..it's just more FUN to have the conflict between Harry and the Dursleys, especially Dudley. And also, it shows us the contrast between the Wizarding World and the Muggle World. If Harry lived with a wizard family, he'd be in the wizarding world ALL THE TIME, but, since he sometimes is in our world, it...well, "grounds" him (not as in against electricity! I mean...brings him "down to Earth") and makes him more like US, the readers...so we can identify with him a little easier. If he lived in the strange, exotic place _constantly_, it'd be harder for us to imagine ourselves in his place.
That's my take on it, anyway.
HEY, Silver Lady! Why don'tcha make up a character, same as the rest of us did? It'll be fun! You make up a name, and decide which House you're in, and what spells your character is good at, and what they look like...'n' stuff. I'm normally Captain Chaotica!! as if you couldn't tell. Here, I'm Molly Featherstone, Ravenclaw 2nd year. Pleased ta meetcha! Again. For the "first" time.