Solubility. If you have a smaller volume of liquid, with double the hops, they will be less soluble than double the liquid with the same amount of hops.
It's more than that, though.
There IS a maximum amount of hops oils that can isomerize- generally said to be 100 IBUs or so, but even one of the most highly hopped commercial beers, Pliny the Elder, has been tested at 85 IBUs (it calculates out to 250+). So many of the experts that have written papers about this claim it's more like 85 IBUs, rather than 100.
So, even if you were able to get 100 IBUs in 2.5 gallons of wort, for the sake of argument, and you diluted it with 2.5 gallons of water (0 IBUs), that means 50 IBUs as a max (even if that were possible).
It's not a big deal for a cream ale or a light lager, but for an IIPA, that does matter. Oftentimes, that is why extract brewers claim their beer is too sweet in the finish- it's underbittered due to a partial boil.
At this point, we've gone off of the topic too far, and the maximum hops isomerization and solubility is a better topic for the Brew Science forum, but here is a link and except and a reference for that topic:
http://beer.suregork.com/?p=2377
The limiting factors include the poor solubility of the alpha-acids, the reaction rate of the isomerization, and the reaction rate of the degradation of iso-alpha-acids. Prolonged boil times (over approximately two hours) do not increase the iso-alpha-acid content of the wort, since after this the rate of iso-alpha-acid degradation exceeds that of alpha-acid isomerization, and the iso-alpha-acid starts to decrease. Hence, the maximum amount of bitterness one can get from a 60-minute boil addition (independent of the size of the addition) is approximately 50 IBU (see this Basic Brewing Podcast and
http://hwcdn.libsyn.com/p/f/9/b/f9b...18566032&hwt=01e66b96fa2138d7a832d1cc94f522b0). If one thrives for a higher bitterness, it must be achieved from a combination of hop additions.