Why do supervisors find it so difficult to provide honest feedback to their subordinates?

Few possibilities:
1. They've never had honest feedback given to themselves.

2. Good news is easy to deliver, but it's difficult to tell people what they are doing wrong. Especially, if they think they are doing a good job.

3. The importance of feedback has not been stressed by the member's chain.

4. They figure everyone gets a 5, so why bother.

IMHO, I think some supervisors have difficulty separating themselves from their subordinates as peers. Once you step over the threshold into management, you become a manager, not a peer. Some supervisors have a hard time making that transition, and would rather continue to be people pleasers. You can lead effectively without worrying about everyone liking you. In fact, my personal statement as a leader is, if I am pissing someone off, I must be doing my job.

Fear of losing a 'friend' or not being the popular NCO (if speaking strictly military).

Chief that is a good question to ask. I think what it really boils down too is the fact that not all the supervisors really know the troops the supervise. This is the eval system, the feedback, is a part of it. In some cases they think they know the troops and bam, the troop does something wrong, and somehow they get protected by the supervisor or the other way around, they slam them. So the first step is to know who you are supervising, not think you know them. That way there, the whole eval system will become better.

Well, there is the simple fact that among all the other reasons given there are several big ones I haven't seen yet.
1) It takes more work to provide individualized feedback.
a) You actually have to know what the person does.
b) What they actually did.
c) How well they did it.
d) All of this in relation to their peers.
2) It takes some moral courage.
3) You have to have been on the receiving end of a good rater, preferably one who knew how to give you a positive, neutral, or negative no-shitter without affecting your relationship. IMHO, once you've been on the receiving end it's easier to learn how to do it. But just to develop from an idealized perspective seems much harder to me.
4) Frankly it's a skill set that few actually work at developing because the task is seen as an interruption of what the rater does, rather than an integral part of their developing of their subordinates, so they don't work at developing the skill.

If they aren't providing feedback they are either lazy, scared of retribution, don't care, or are incompetent.

I think the fear that prevents honest feedback is usually rooted in what Col (Join to see), CMSgt (Join to see), and SPC Nicholas Anderson have already described. It's human nature, and I've faced it myself in my leadership roles so far. That said, I do believe the solution is not in accepting the role as bad guy, but in recognizing this nagging desire for acceptance as a distraction. The damage caused by negative performance is usually to mission effectiveness or unit cohesion/morale. I've had the most success, personally, when I've managed to stand shoulder-to-shoulder (rather than nose-to-nose) with my subordinates and link their behavior to the operational outcomes we both passionately desire. It doesn't always free me from being the object of anger and resentment, but it does encourage a little more introspection when there's no adversary saying, "because I said so."

because their supervisors won't let them.... On several occasions I've had to redo counselings or NCOERs because my supervisor didn't like my honest assessment of my subordinates.

I find theres a significant lack of objectivity in the rating assessment. I also firmly believe that it's a shame there isn't a real peer review done, or a board for evaluations. Standardize rating criteria, and you might find there's less "turd polishing".