Is it a hardware or software limitation?

Technically, it's both.

Hardware: The DSP, if I recall correctly, can only play 44.1khz 16-bit stereo. I think this is because it's originally intended for use in car CD players.

Software: Because the software has to upsample anything to 44/16/stereo, it's got to go through a samplerate converter. Doing samplerate conversion is a bit of a black art as far as software is concerned, it's not as simple as just padding the values. There's some actual math involved.

Although I think it might be possible to improve the samplerate converter in the software, I'm not certain if it's a CPU-limitation, or just a lack of good source art for that kind of thing. If I recall correctly, the really GOOD samplerate converters are patented.