Why?  B/c of the free pawn he gave up? 

I still have no idea what is so wrong with 

What is so wrong about 3. Bc4 ????

Bc4 isn't that bad. Mickey Adams used to play that move.

Fiveofswords is correct: ...e6 makes the bishop on that diagonal irrelevant. Of course, Black could always forget to play ...e6, which (especially if combined with another mistake like moving the same piece twice in the opening) could lead to very quick win by White due to that bishop placement, something like this...

http://www.chessgames.com/perl/chessgame?gid=1008376

...but you should assume your opponent will have perfect play. By the way, I *thought* I read that that diagonal through f7 is called the "Fischer diagonal" because of Fischer's dazzling wins with that bishop placement such as in the above game, but note that Fischer later stopped playing Bc4, probably for the reasons Fiveofswords mentioned, and now I can't find a reference to that term.

P.S.--That diagonal is called the "Italian Diagonal" (http://exeterchessclub.org.uk/content/italian-game-beginners) though I still believe I saw the name "Fischer diagonal" given to one of those nearby diagonals.