Here's the thing about Hell: it was originally intended for Satan and demons. It was not initally made for human souls. As binary as it sounds, you either accept God (in the New Testament era, that's accepting Christ as your Lord and Savior), or you reject Him.
God did not create people to be living souls so that He can have them burn eternally outside His presence. However, He did not create us to be robots, either. It's far greater to serve God, worship Him, and be in a relationship with Him freely, in Spirit and in Truth.
As to why God can't simply wipe away every man's every sin on the spot; that would not be just. This is a tired old analogy in Christendom, but I think it does hold true. It's as if a person murders someone, and gets off scot-free without any consequences, it's just not just.
God made Earth originally as a perfect place, but when Adam and Eve (people's original ancestors) disobeyed God, it brought sin and death on everyone. However, the first sin was in Heaven. Satan (then Lucifer), was the "worship deliverer" to God, and he grew prideful, thinking he could overtake God. God cast him out of heaven, along with his minions. With Satan gone, God created people to worship Him.
The ultimate punishment for sin is death, hence why Jesus became the ultimate sacrifice (basically taking on every type of sacrifice you could list in Leviticus). That's the only way to God. It's exclusive, but it's available.
So why does God allow people to rebel against Him? Why don't more people come to Christ? Why is the church getting lousy at evangelism? Why did God create Satan if He knew what he would do? Okay that last question stumps me to no end, but then again, it's not like I'm even a theologian or anything.
TL;DR: God doesn't just arbitrarily send people to Hell. He just cannot accept imperfection in Heaven. It's not His nature. By the way, when people who are saved die, their souls leave for Heaven, and God perfects them for Heaven, in case you were wondering.
Sorry if this was long and confusing.