This is part of my RPG series of entries here at SOB. See the inaugural entry in the series for more details.
PRPG compatibility isn't about keeping your core books.
One of the major problems with adoption of the new 4th Edition system is the fact that most, if not all, non-core books will be obsolesced by the new system. As things currently stand, you can go buy the new three core books for 4E (PHB, DMG, and MM, naturally) and exactly one module. That's it. Considering the vast modifications to the system, expecting to get much rules-related use out of your 3.5 MM 2-4, Expanded Psionics Handbook, and gameworld books is unrealistically optimistic at best.
Now consider the market involved. New gamers will go to stores and buy new books. New gamers will not just magically stumble across old copies of D&D 3.5. All the new blood goes to the new game books — which means 4E if we don't have something like Pathfinder as an alternative. Of course, the rules in the 3.5 core books are distributed under the terms of the OGL, which means you can distribute them freely. That's not quite good enough, though. Gamers like having physical books, including gamers like me, so electronic distribution isn't quite enough to support a significant fanbase. Physical books, on the other hand, cost money to make.
Reprints of D&D 3.5 books don't make for much of a money-maker when 3.5 is "obsolete". On the other hand, D&D 3.6, with improvements in some of the more flawed, complex systems of D&D 3.5, might really catch on. It's not just a retread: it's an update. 3.6 is, of course, Pathfinder.
The trick is to make it backward compatible. If you can't use the non-core books you already own with it, you're far less likely to get the new Pathfinder book. Not only would you have to start rebuilding your collection of supplements all over again like you would with 4E, and not only would you have to wait until the additional books are actually published, but you would have the problem that Paizo (or another publisher other than Wizards of the Coast) probably won't create the volume of supplementary books you already own if you already have a significant collection, nor is Paizo likely in the near future to build the kind of third-party publishing support that Wizards had.
Not only does Paizo need to attract people who already own a bunch of non-core books that they don't want to give up, but it needs its new Pathfinder update of D&D 3.5 to be compatible with those books so that there's a decent range of non-core books out there to support its new core book. It doesn't get much easier than for customers to already own the books. Better yet, with 4E out now, 3.5 books tend to be pretty cheap in a lot of places — so if you seek them out, non-core 3.5 books are really cheap.
News flash: Paizo isn't doing this Pathfinder thing primarily to make money by selling a new game (or, if it is doing it for that reason, it needs a refresher course in business sense). It's creating and publishing this new Pathfinder RPG to maintain a user base for 3.5 compatible game modules and other materials Paizo publishes.
Some people complain that Pathfinder's Alpha releases aren't really 3.5 compatible, though. What they see is that the rules in Pathfinder differ from those in the core books. What they're not seeing is that the rules are meant to be compatible — not identical. In fact, the new Pathfinder book is in some respects meant to replace the core books. They're meant to be compatible with everything other than the core books.
You have some choices:
You can just keep using your 3.5 core books, and watch the 3.5 gaming community die around you the way the 1st Edition, 2nd Edition, and 3.0 gaming communities have basically died off completely, then eventually move on to 4E — or not. Maybe you'll stop playing. Gaming groups aren't eternal, though. Campaigns end. Eventually, something changes.
You can move on to 4E. You might want to have a look at the books before you do so, though. Depending on your tastes, you might not like what you see — especially if you're the type that thinks Pathfinder isn't "compatible" enough. On the other hand, maybe you really do prefer game systems like those in MMORPGs over game systems like, say, D&D's before 4E. Whatever floats your boat, I guess.
You can give something like Pathfinder a shot, and realize that what Paizo is creating is an attempt to improve on the 3.5 system, to help you keep using your non-core books with a vibrant and growing gaming community rather than having to choose either replacing them all or sticking with a system whose gamer community is poised to start withering away.
You can give up.
I'm okay with replacing three core books with a single new (and improved) core book, having Paizo and third-party new published materials available to me when I want new books, and keeping all my non-core books still relevant — rather than having to rebuild my D&D gamebook collection from scratch. I'm okay with having a strong and growing gamer community attached to my game of choice without having to use a system that, frankly, I don't much like (such as 4E). In general, I'm okay with Paizo's definition of "compatible".
I don't want things to stay the same just to have them stay the same. I'm not afraid of change — as long as the change is for the better.