I'm glad they did, as 18" wheels would mean spending even more time driving down the road avoiding pot holes and defects!
I look a like drunk half the time as it is, such is the shocking state of the roads.
I've fitted 200/580/15 (approx 50% profile) tyres on my other car and that gets tracked heavily - there's no issue with sidewall deflection, and the added compliance helps the car track minor surface defects. If you don't need the brake clearance, to a point bigger wheels don't help the dynamic package generally - more rotating unsprung mass, and less tyre compliance.
If you believe opinions of the EVO magazine contributors, then most of the hot hatches they've had in recent time have been a far better steer on the smallest wheel option offered. Megane 250 and Focus ST for example.
There was a thread sort of on this subject on PH:
http://www.pistonheads.com/gassing/topic.asp?h=0&f=23&t=1111299&mid=0&i=0&nmt=Bring+back+ride+quality!!&mid=0I must be in the minority as given a choice of two otherwise identical Mk5 GTIs I'd buy the one with 17" wheels.
As to why VW fitted 17" wheels - I can only presume the bean counters and chassis engineers managed to beat up the marketing team, or sold them the concept of rinsing extra money from those wanting bigger alloys.