Pulled manes all started back in the 1500's when fox hunting started. The manes were pulled and braided so that at a high speed the mane was not caught on any branches. Since most of the english disciplines that we ride today (hunters, jumpers) originated from fox hunting, the tradition has been passed on and is recognized as part of the sport. It also looks neater and more presentable, and shows off how the horse carries it's neck.
Some people just do it because they like it, and other's have horses like mine with manes so thick that they grow on both sides of the neck and you can't run your fingers through it, so it is more managable to just keep it short.
If you're not showing and don't care to pull it, then it isn't in any sense cruel to leave it long. It's just personal preference.
~Kait & Mark~