Static fields are associated with a class rather than a particular instance of that class. A non-static inner class is associated with a particular instance of the class that contains it. It doesn't make sense to have the member variable longer-lived than the class that declares it.
To be a bit more precise, static members are associated with a Class object. All classes loaded, even inner ones, will have exactly one Class object (ignoring multiple or badly-behaved classLoaders). So there is no logical reason for disallowing static members in inner classes. IMHO, the fact that they are not allowed leads to an unnecessarily complicated and foggy nested class specification. And by the way, I hear the compiler is sneaking static members into inner classes as part of the assertion mechanism. Chandra, you asked a good question.