There was a post on the WoW forums where someone asked the question "Why do people raid?". In large part because of Scholo/Strath raids, a lot of casual players simply don't think that 40-man raids can be challenging. After all, people raid Scholomance with 10 raiders because it is easier than going with 5 players. If 10 people is easier than 5, surely 40 is easier than 10. There are also few raid-style fights in 5-man. In my opinion, you really don't understand what the attraction of raiding is until you actually try one. The only real attraction a casual player sees is that raiders get epic loot.
Raiding is like solving a puzzle. The attraction of raiding lies in figuring out the puzzle, coming up with a strategy, and executing that strategy with a large number of people. It does require skills, but different skills than a 5-man does. A 5-man is more in the moment, more about anticipating and reacting to unexpected events.
Raiding is like playing in an orchestra. 5-man is like improvising jazz. Both require skill, but the skills required are different.
Of course the question then becomes: why do raids deserve epic loot, and 5-mans do not? The answer is that raids are not necessarily harder than 5-mans, but they can be more intricate. To go back to the music analogy, with a saxophone you can do a lot of crazy things while improvising jazz, but you simply cannot have a violin solo in the middle as you don't have a violin. Similarily, you cannot make a 5-man fight that lasts longer than one healer's mana bar. You cannot count on there being more than one healer in the group. But a raid fight can be arbitrarily long, thanks to the existence of healing rotations, where one healer regenerates mana while another heals, with a switch when a healer runs out of mana.
However, I do think that WoW overly rewards raiders, at the expense of casual players. Molten Core is a bit too easy or simple for the quality and quantity of rewards that it gives out. However, Blizzard seems to be making an effort to improve the imbalance in 1.10, increasing the quality of rewards available from 5-man dungeons.