Why are SQL-Server UDFs so limited?

It's usually best to think of the available tools as a spectrum, from Views, through UDFs, out to Stored Procedures. At the one end (Views) you have a lot of restrictions, but this means the optimizer can actually "see through" the code and make intelligent choices. At the other end (Stored Procedures), you've got lots of flexibility, but because you have such freedom, you lose some abilities (e.g. Because you can return multiple result sets from a stored proc, you lose the ability to "compose" it as part of a larger query).

I understand your issue, I think, but taking this from your comment.

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