I think it was because the DM was supposed to decide for himself when the monsters retreated.
I have no problem with that in theory. However, I have found when I use the morale rules from O(A)D&D mechanically, monsters retreat or surrender far more often than they fight to the death. When I simply decide when monsters retreat or surrender, I'm far more likely to have them stick around and be slaughtered.
I like the results of the former rather than the latter. I guess I like what some of the "old school" bloggers call the "oracular power of the dice," or maybe the dice play the monsters smarter than I do. Anyway, when monsters retreat or surrender more, the party tends to not get scuffed up as much in less important fights, monsters can become re-occurring foes, and a lot more rp-ing happens.
It'd be real easy to incorporate the B/X D&D morale rule into 3e (or anything else). For each encounter give a morale rating of 2 to 12 - 7 is average, 12 is fanatical, 2 is cowardly. During combat roll for morale any time something happens that might make the opponents break (first death, half dead, leader dead, impressive show of force or magic, ect.) If the roll of 2d6 exceeds the morale rating, the opponents surrender or retreat as appropriate. If the opponent passes two morale checks in a combat, they fight to death.