Why do many manga artists prefer to use pen and paper over digital drawing? It seems that many renowned manga artists still prefer using traditional "hand drawn" methods rather than using technology to draw. Even people who use technology to finalise their art rely on  pen and paper to sketch their initial outlines. What are the limitations of drawing using digital methods?
There are two primary limitations to an artist switching from traditional to digital media:


Adjustment
Money


That's really all there is to it.

The two reasons go very much hand in hand; most artists will start with traditional media because quality digital media is expensive. There's no getting around it. A basic setup requires a computer with good graphics support, a software package that can be used for comics/manga production, and a graphics tablet (typically a higher end one like Wacom's Cintiq).

On the other hand, anyone can pick up some free scratch paper and a pencil or pen and start sketching. There's virtually no barrier to entry for learning traditional media. Once you start to get more serious about it, yes, traditional media can also get expensive (comic/manga art boards, multiple pens and brushes, various types of inks, screentones, alcohol markers for color pages, and so on), but you don't have to spend a dime to start.

There's a process of adjustment that takes time when switching from traditional media to working digitally. The two feel different, even if you're working with something like a Cintiq where you don't have to disassociate your hand position from what you're seeing. You're learning a new medium, and it always takes time to adjust to it. An active manga artist is working on a strict publication schedule, and isn't necessarily going to have time to go through that adjustment period; artists who are extremely popular will have greater demands on them, and those who are just starting out will have no ability to ask for schedule changes or additional assistants to work through the transition.

There are artists who do use digital media (Hiroya Oku, Asano Inio, Natsume Ono), and certainly there are some who would be interested in making the transition, but for many, it may well be simply a preference that keeps them from making the shift. They prefer the feel of a pen or brush on paper to a stylus on screen, and therefore have no motivation to sink either the time or cost into transitioning to digital. Working digitally has an additional limitation when it comes to assistants: either you are now a one-person show, or you have to sink money into a workstation with tablet for each assistant on your team. Particularly with popular artists who depend on their assistants to meet deadlines, there may be no choice but to stick with paper that can be passed around between the people working on the title.

There are no technical limitations. Multiple companies make Cintiq-like graphics tablets at various price points and functionality, allowing for a more "traditional" workflow for the artist. Multiple companies publish software that can be used to create manga pages, including screen tones and tools that emulate traditional media very effectively; any of these programs can export into any number of standard formats that can be read by the publishing company, which is undoubtedly using digital versions of all pages, regardless of how they're produced, to assemble their magazines. The only limitations are in the cost of transitioning, both fiscally in actual money spent, and the investment of time needed to adjust to the new media.

Sources: Manga Answerman - What Tools Does A Mangaka Use To Make Manga?, personal experience with various hardware and software