Is it because of the inherent limitations of cooling the cylinder walls, only 2 valves per cylinder, relative ease of scaling up instead of dialing up the boost, or some other reason?
I read somewhere once, maybe I can find it again, but it is because of the inherent limitations of cooling the cylinder walls. Air cooling is not as controllable, because the temperature of the air varies with altitude and season. Hence, the temperature of the cylinders in an air cooled engine are not as tightly controlled as a liquid cooled engine. So, the cylinders need to be able to operate over a greater temperature range. Since metal expands with temperature, that means the gap between the cylinders and the bore is typically greater in an air cooled engine than a liquid cooled one. So, this greater gap, even with piston rings means some of the cylinder head pressure after combustion escapes rather than act on the piston. Makes sense to me...
A liquid cooled engine doesn't necessarily expose all its cylinders to the airflow, which reduces drag in comparison to a radial engine. Also, water is a much better medium for distributing heat from an engine so it takes much more heat to have a detrimental effect on LC engines (aka temperature above operating levels).
Additionally, the design of a LC engine (inline or V) require the cylinders to be arranged in banks where one camshaft can be used to actuate valves in multiple cylinder heads (thus producing more HP).