I work as an admin for a ResNet (RESidential NETwork), so I feel qualified to respond.
Disclamer: I work at a public university. My comments here apply to most other public institutions. Private schools often work differently in these regards, mainly due to differing organizational structures.
Most ResNet operators DO care about the entertainment value of the network. The res hall experience is meant to be one where the student does feel at home, and can relax and play as such. The problem is money, as others have pointed out. Bandwidth is really expensive, and we try and strike a balance between having too little and having too much. Too little, and students will complain because almost all of the apps are bandwidth limited. Too much bandwidth, and the administration will complain that we are spending too much of the student's money. Housing operations are under pressure to not jack their rates up too much, because tuition is generally skyrocketing as the states pull money out of public higher-ed.
That leads me to talking about money. In a public school, all money is not equal. There are two types: tuition/tax payer money (refered to as General Purpose Revenue (GPR)) and program specific money (Program Revenue(PR)) that goes to specific programs like housing, food service, student unions, etc. Even though as a student, you tend to see one bill, it is really broken out. Money paid to housing goes to housing, period. No one else can spend it.
ResNets are paid for using housing money. And it isn't very much of it, per student. In our case, out of an approximately $2000/yr housing bill, only $150 per year per student goes towards running the ResNet. That pays for bandwidth, networking gear, support staff (students and full-time staff), etc. If you compare that amount to what you pay for a cable modem around here ($50/month from Comcast), the ResNet is a steal! Yes, Comcast gives you more bandwidth, but you pay 3-4X as much. Plus they have much larger economies of scale working in their favor.
So, while we could purchase more bandwidth, and give more to games, etc. it is hard to justify that in the overall picture when, as I mentioned, tuition is going up so fast and hard. And not everyone wants to pay $50 more per year so games get more bandwidth when myspace.com and facebook.com still load fast.
