Annie Hall appealed to cineastes and the intelligentsia, it was self-consciously aware "high art" with Euro art-house references and highbrown cinema in-jokes, a self-reflexive work of deconstructionism--it was practically made for Acadamy voters of the late 1970's. This is the type of material that would make Pauline Kayle cum, and i can see why it won. Star Wars on the other hand, while considered a grand and sweeping epic, was too juvenile and unserious to win over Annie Hall for Best Picture, which is why it was honored through nominations but ultimately passed over for the win. In hindsight of course it is perhaps the most culturally important film of the second half of the 20th century, but in early 1978 this wasn't exactly apparent.

Thats really as simple as it is. It wasnt age--Woody Allen was practically the same age as Lucas--nor was it politics or some kind of anti-Star Wars/Lucas conspiracy (the Academy loved the film and gave it many wins and nominations--including best director, picture, screenplay and supporting actor, pretty heavy stuff). Its like David Lean's Lawrence of Arabia versus Ingmar Bergman's Persona--both are great films, the Academy would love and honor both, but in the end Persona would win--at the time of the late 70's that is. That was the era of treating American cinema as "Serious" and "artistic" works of self-expression, of which Star Wars is often seen as the antithesis to.