1. Manufacturing tolerances - The G-lader is a very efficient blower design, and unique in the world of super chargers. The problem with it had nothing to do with efficiency, but of manufacturing tolerances. It's tight in there, and there are a lot of surfaces that need to be perfect. One seal out of place, one tiny piece of the delicate magnesium displacer not in alignment, and you'll be on the side of a stage before you know it. Forget about the charger timing belt breaking, jumping a tooth, or a bearing developing even the slightest bit of play...
As you can see below, there is a lot going on within the housing, with the 60mm scrolls rotating pulling air in through the hole on the lower left, and being expelled through the outlet in the center.
2. Heat - All those sealing surfaces make for a lot of friction. Friction creates heat, heat causes problems. Multiply that by the fact that the VW works team was significantly overdriving their chargers for competition use, and it becomes another weak link.
A broken charger is not pretty...here's a closer look at the internals. The balance shaft is easily visible here.
3. Limited boost - Compared to other superchargers, the G60 works out to be a pretty solid unit with regards to power output. It doesn't suffer the "lag" and lack of bottom end torque that a centrifical blower tends to have. What it didn't have was the ability to be a turbo. At a time when everyone was running a turbo, VW decided to run a charger. There was just no way it would be effective against the turbo'd cars from Lancia and the far-east. Like bringing a knife to a gunfight as they say.