In my experience, the reason you don't see this very often (at least in the US) is "it's very complicated, we as game developers lack the expertise, and there isn't much profit in it."
Online gambling laws are really complicated. I'm not even going to pretend my limited comprehension of legalese is up to the task of parsing them. It's not necessarily very clear how MMO games fit into that law:
During an interview with Virtual World News, Alex Chapman of the
British law firm Campbell Hooper stated: "Now we’ve spoken with the
gambling commission, and they’ve said that MMOGs aren’t the reason for
the [Gambling Act 2005], but they won’t say outright, and we’ve asked
directly, that they won’t be covered. You can see how these would be
ignored at first, but very soon they could be in trouble. It’s a risk,
but a very easy risk to avoid."
But I know of no cases where a game operating in the US (at least) has tried to go up against this law and get it sorted it out in the courts. Consequently, everybody seems to feel like the safer thing to do is simply avoid the possibility by preventing cash-outs and prohibiting secondary markets, rather than deal with having every aspect of the game scrutinized constantly and possibly repeatedly by gambling lawyers.
But the legal specifics are just one aspect of the problem. Another major part of the issue is that when you start allowing cash-outs, you're building more than just a game. You're building a game with a pseudo-bank attached to it.
The logistical implications are many. Primarily though, this means you need to be able to keep sufficient liquidity of assets in order to serve all your potential cash-outs. Game studios aren't really banks (and even then, banks are only required to keep 10% of their outstanding liability in the US at least), so they're not FDIC-insured. If everybody tried to withdraw what they're owed from the game at once, the studio would probably fold unless they kept all of that money readily on-hand. And since nothing like the FDIC backs game studios, most of those players would get nothing.
Even having that money is a problem. If a game allowed you to generate real money from in-game currency or items that did not at one point originate from putting real money into the system, you'd have to produce that money from somewhere (your profits or savings from elsewhere).
Even if you do restrict the system so at any given point, only cash that has been put in (by somebody) can be taken out (possibly by somebody else), backing 100% of cash-out severely curtails your ability to make any profit off that money... and micro-transactions are an appealing and reliably form of generating profit for a studio. This means the studio can't funnel that profit back to shareholders or employees (in the case of a profit sharing plan).
The studio could invest the funds, certainly, but you wouldn't want it invested into anything high-risk because of the chance of dropping below the balance required to back 100% cash-out. The potential earnings on a very stable investment are much less attractive because of the typical lifetime of a game studio (short), to the point where that investment capital (that money players are putting in to your game) seems like a far better place to take profit from than a piddling amount of interest on said capital.
So games just stay away from it. It's less stressful.
As for Entropia Universe in particular, you're right that being based out of Sweden is probably the key factor in allowing it to operate the way it does. Swedish law regarding online gambling appears to be far more amenable to the scenario than US or UK law.