I think the main reason is that the movie asks us to sympathize with the lovers (Norton and Biel). I think this was a huge mistake. If the story had remained Giamatti's completely (as I think the short story must be), the film might have been artistically, if not popularly, acclaimed. Most of the story is Giamatti's but the powers-that-be couldn't stop themselves from giving us the lovers' point of view and hoping we would commiserate.
Well, I didn't. I'm sorry; I don't care how horrible the prince was supposed to be (and I never got any real proof of his horribleness), setting up a guy to take the blame for something he didn't do is still, well, setting up a guy to take the blame for something he didn't do. It was, in fact, a murder plot worthy of Agatha Christie since if the prince didn't kill himself, his father or the people would.
Yuck. I couldn't feel any sympathy for the lovers. I didn't care. I hoped she would die of consumption within a year--take that, you mindless, self-indulgent, murdering jerks.
BUT if the story had remained Giamatti's entirely--if the whole object had been the chief inspector's reaction to the illusion; if, that is, the audience had not been asked to care whether the lovers got away or not but only if the chief inspector came through with his dignity, I think the movie would have been far more creatively satisfying.
This approach could have worked since Giamatti and Sewell (the prince) played very well off each other. (And with the new approach, the chief inspector and the prince would have become the core of the story.) Sewell is one of those scene-chewing actors, and Giamatti handled the scene-chewing with aplomb. In fact, the final scene between them before Sewell kills himself was so awesome, I sat there going, "Why couldn't we get more of this? It isn't Sewell's fault he can outact everyone in sight!" (Although, in fairness, I think the acting, Giamatti apart, was fairly even; Biel may be the weakest link, but she's lovely enough that it doesn't matter, and Norton isn't so outrageously talented that he looks odd next to her. I realized, after the movie started, that I'd gotten Norton confused with Jeremy Northam, who probably would have outacted Biel. I don't require great acting in my movies, but I do require balance.)
Lady in the Water had its own near-miss problems, but at least Shyamalan let Giamatti carry the story. Point of view really is everything.