Because if you just send the MD5, others can log in as you when they know the MD5, which they can just sniff. It doesn't gain anything in security, except for not knowing your actual password.
That wasn't the reason for Hashing the password before sending it to the server. It's common knowledge that a lot of people use the same password for many lower-rung services.
So if I send MD5 ( Password + Salt String), even if the attacker sniffs this and logs on as the user, the original password string isn't compromised, despite the fact that the salt string is publicly visible.
At that point, the server will have to have received the MD5(username realm pass) at least once in order to verify the hash. You're better off not building your own schemes and instead trust existing solutions like SSL.
