It does, for a suitable basic definition of “basic” (it supports italics and preformatted monospace code blocks).

I think it's largely an aesthetic preference to focus on text content rather than distracting formatting that results in not supporting more. Aside from a decent formatting option for distinguishing block quotes, I don't really see any more formatting as being desirable, and even that is more to avoid people being tempted into using code blocks for blockquotes than because there aren't tolerable ways to present them without special formatting.

I've always chalked it up to HN's unchanging, simple aesthetic and interface (or, "ain't broke, not fixing")

You can block format with 4 spaces, but this isn't always ideal since it doesn't line wrap