Well, we probably don't see him in the flesh because we don't need to - he is the "phantom" menace, after all. And we do actually see him in the flesh at many other points in the movie, really, just not as Sidious.
There's no real reason we shouldn't see Palpatine in the flesh in Empire, if someone was inclined to add that. And in Episode III, we do see two-way hologram conversations.