Look at the error messages that you get when you try that with http://validator.w3.org
Apart from a warning that you haven’t specified a character encoding (and that it’s therefore assuming UTF-8), the main error is that a <p> isn’t allowed to contain non-inline content. You can either remove the <p> and </p> completely, or, move them inside the <form>.
As for ‘why’, it’s because that’s how it’s defined in the schema which defines what is and what is not valid XHTML. If you look at this section of the XHTML definition you’ll see that <p> is only allowed to contain text or ‘inline’ (not ‘block’) tags. However a <form> counts as ‘block’ content not as ‘inline’ content.
In other words, a form can contain paragraphs, but a paragraph cannot contain forms.