The fundamental limitation is simply that the JVM does not provide tail calls in its byte code and, consequently, there is no direct way for a language built upon the JVM to provide tail calls itself. There are workarounds that can achieve a similar effect (e.g. trampolining) but they come at the grave cost of awful performance and obfuscating the generated intermediate code which makes a debugger useless.

So the JVM cannot support any production-quality functional programming languages until Sun implement tail calls in the JVM itself. They have been discussing it for years but I doubt they will ever implement tail calls: it will be very difficult because they have prematurely optimized their VM before implementing such basic functionality, and Sun’s effort is strongly focused on dynamic languages rather than functional languages.

Hence there is a very strong argument that Scala is not a real functional programming language: these languages have regarded tail calls as an essential feature since Scheme was first introduced over 30 years ago.