Why do companies only offer a handful of mutual funds to invest in a 401k?

The biggest reason is cost. During the construction of the 401k portfolio, your Employer and the Brokerage make arrangements on the Funds available for investing. Now there are costs to your Employer for the nature of the contract with the Brokerage, which includes the Funds offered. Some funds aren't as popular as others, or there may be some in-house funds the Brokerage is trying to sell too, so they adjust the overall costs of the contract by the mix of funds they select.
It is also worth mentioning that your HR department is generally the one working these contracts out, which explains a lot of the times why they suck.

A couple of reasons. Small companies don't have the staff to investigate many funds. They just pick the few that have a good track record. Of course... the past does not mean they will do well in the futures. In fact, the opposite seems true in many cases.

Plus... companies don't want to take the blame for loss of employees money in a wide selection of funds.

You can always ask that more funds be included.

Maybe you look to work for another company. My company 401K has hundreds of mutual funds available, with more being added all the time.

There are probably two main reasons. One is that it costs more money to offer lots of funds. The second, sorry to say, is that many people aren't that knowledgable about investing. Offering dozens of funds doesn't help if the majority of your employees don't know a money market fund from a small cap growth fund and aren't interested in learning. I know too many people who can't be bothered to learn basic investing because it interferes with watching American Idol.

statistics show that if more than a dozen or so mutual funds are offered, less than 50% of the employees opt to defer into the retirement plan because they are not savvy and get confused so they just don't bother enrolling into the program.

Some do, some don't. Federal law requires a minimal spectrum of options, but beyond that, its a matter of what company the employer chooses to be plan custodian.