The ironic part to the limitation is that it only applies to the iTunes part of the phone. If you put normal MP3 files on the phones memory, and use the built in java media player that other Motorola phones also have, it has no limitation.

The iTunes synced songs also can not be used as ringtones. Seems odd, considering I am sure most people would want to do so.

The rumors say Apple wanted the number at 25 initially. Again, noone is sure why, beyond trying to avoid impacting iPod Shuffle sales. And of course, noone external to Apple knows how Shuffle sales are doing, as they only release a sales number covering the entire iPod family.