When I first started writing down the fanfic that had been uncurling in my head since I first liked a story, it was rubbish. I shamelessly ripped off LoTR with my epic saga of Arwen Evenstar rewritten as a Mary Sue, riding around Middle Earth on a pony. I was twelve or thirteen. Heck, thinking about it, that wasn't my first fanfic, but it was certainly my first finished one, and I was very proud. I wrote it out neatly and gave it to my English teacher, and she was mightily impressed. I did pretty well in English. Later on, for my A'levels, I was asked to write a diary from the point of view of Maggie in Cat on a Hot Tin Roof. That was where I started to learn about writing in English-that-was-not-my-accent.
When I first started reading online fanfic, it was mostly pretty terrible (ASIDE: ah, alt.tv.x-files.creative, those were the days! My tall, Canadian internet boyfriend... yes, I lived the cliché). It was trial and error, and the good stories were precious, I saved them all on floppy discs. I got used to the idea of fanfic as a natural progression of my own interests in reading, watching, and writing.
When I got into X-Men, I knew enough to go searching for fanfic for my pairing of choice. Being more critical by then, I almost gave up in despair before I found the good stuff - but eventually I did find it, and boy was it good.
By the time I got into Stargate, I had some methods for finding good fanfic, the most reliable of which was to look for anyone writing fic of vaguely the kind I want, follow their recs, find someone who wasn't completely unreadable, follow their recs, find someone decent, follow their recs, find someone even better...
So, this is what I think I've learned: the problem with some of these writers is that they've never found the good stuff. Leaving aside the issues inherent in reading fanfic of one's own work, they're not interested in reading fanfic of other people's work*, in fanfic for its own sake. And that's fine - their choice. But because of that, the only fanfic they'll encounter is the most immediately accessible to someone not familiar with finding good fanfic.
Really, I feel quite sorry for them. I honestly do. I've read things that would make their hair curl. I've found stories that blow the professional works on the shelves of my local bookstore clear out of the water - out there, free, gratis, for anyone to read. But to find them, to read those jewels, the reader has to fight Sturgeon's Law, and unless and until they've done that, all they're likely to see is the crap.
The books we buy are often better than a random selection of fanfic, but that's comparing apples and oranges: people rarely buy books by poking a pin into the list of all books published that month. If that's how they're examining fanfic, no wonder they think it's the Pits.
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There you go, my tl;dr.
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thefourthvine put it much more succinctly in this post: Because, okay, yes, most fan fiction is crap, but so is most published fiction. (Anyone who wants to refute that has to read ten books selected by me first.)* Unless it's published, like The Wide Sargasso Sea, but famously brilliant works do not a representative sample make.
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I keep feeling an urge to point out one or two really good ones to these authors: "Look, just read this, and you'll get it." I doubt they'd listen to a fanficcer's recommendation, though. :7
The problem seems to be their mental definition of fanfic as inherently badly-written - whereas fanfic readers and writers know that, although there is a lot of terrible stuff out there, there's also stuff written to a professional level. They're applying a qualitative judgement to what is actually a legal question, and they don't seem to realise that the majority of fanficcers are on the side of the authors when it comes to turning a profit using someone else's characters.
Plus, as has been pointed out, if you sort through a random selection of fanfic (especially at, say, the Pit of Voles), you're looking at the equivalent of the slush pile, because there is no editorial selection going on.
Whereas if you're looking at published fiction, it may not be good, but (unless it's self-published) at some point an editor has said "Yes, this is worth publishing." Which tends to screen for at least minimal literacy and coherence.
It's just... they can question the legality if they must (and good luck to them in finding a law that will cover it), but arguing that it's all bad writing is just ridiculous and insulting.