Actually it's 100% a greed issue. See, they don't make money on the consoles themselves. They make money via kickbacks on the games. A percentage of each game sale = cha-ching for the console maker. If they start allowing mods, they're not going to be selling any new games. Thus they stand to lose a fortune. Soooooo, no mods.
True, however mods do cause some amount instability with the game. If people just went mad installing mods and didnt know the consequences it could cause game stability issues. Meaning people would expect to have Sony/Microsoft fix their consoles. Although that is more on the user then the company, but still it would be just more trouble for Sony/Microsoft. (And like I said, its also a hardware issue, a well modded game on the PC can take well over 1.4GB of RAM. Something that the consoles do not enjoy the luxury of having)