This.I really don't think the reward is the biggest issue, even if they did something crazy like make third coil's gear 30ilevels above everything else, you wouldn't see an explosion of people raiding. It's just a time/schedule thing.. Finding 7 other people who a, don't suck, and b, can play regularly together at same times is tough. Lockouts further complicate things.
I also think you are underselling the appeal of raids besides gear. Most people who are raiding are doing so because they enjoy it, I mean once you actually can beat the content you don't even need the gear anymore. It still gives you a sense of progression but the biggest draw is that feeling after finally achieving that first kill. It's really not limited to raiding either, it's just the sense of accomplishment when you finally pass some roadbloack. Whether that be Titan, Twintania, or Nael. Yeah it can be frustrating learning and wiping, but that just makes it all the sweeter when you finish it, and all players have likely felt that way at some point while playing. That is the true carrot on the stick imo, and it goes far beyond whatever stat points you get.
Hell, most of you will call me crazy, but due to scheduling, my static falling apart months ago and just pure shit players, I've been raiding at 5:30 AM with a group of Aussie folks I was lucky enough to meet. I wake up a few hours early before work and raid. Honestly, it's fucking awesome.
Since making this choice, I also joined their FC and my gaming/raiding experience has increased tenfold...and this is coming from someone who was banging my head against pre-patch Twin way back when with a damn good FC/static.
and to hit on the second paragraph...yeah, there's really no better feeling, in MMO gaming, than the feeling you get after beating that encounter you've been wiping on for 2 weeks. That feeling of accomplishment from working with the same group of people and finally putting it all together and winning is pretty damn amazing.