The short answer, according to this article, is that they lack a sacramental life. In other words, the emphasis on 'facts' interferes with the ability to exercise 'fancy.' The focus on 'sign' rarely gets beyond to what is signified. The place where this shows up most obviously is in the approach to the Eucharist. For most evangelicals, the "Lord's Supper" is a symbolic memorial. For Catholics, it is this and much, much more: it is Christ made fully present to His people sacramentally. The sign and the signified are one.
Perhaps Flannery O'Conner explained it well when she described fiction as 'an incarnational art,' whereby the writer is able to observe, in the concrete and tangible, the workings of the unseen. This sacramental approach to life itself makes deep fiction-writing possible.
This whole idea of the importance of story can be approached another way: Consider how Evangelicals and Catholics respond to the question, "What is the Gospel?" Evangelical Protestants - I was one for a long time - are well-versed through diligent Bible study to reply with a set of distilled propositions, often in a brief outline form: God is holy and loving, we are fallen and sinful and this shortcoming results in separation from God and one another, God's merciful answer to our problem is Christ who died for our sins, and we need to believe it and receive the risen Lord personally and live thereafter with integrity by His Spirit. That's all true and good as far as it goes - I wish more Catholics could articulate this.
Now, propositions aren't bad. Catholics also adhere to a set of propositions as articulated in the creeds (Apostle's, Nicene). But even in the creeds, what we get is less a set of proposals and more of a story outline.
That's the difference. Catholics are much more comfortable with narrative. So when asked what they believe, they're more likely to give you the story of the gospels rather than a series of proof-texts from Paul. They're big on the life-stories of the saints. This is similar to Jews: if asked what they believe, they're likely to reply, "Let me tell you a story..."
In fact, Catholics see the Christian life itself as a kind of story with a beginning, middle, and ending that is not entirely certain and contains some suspense. So the beginning is baptism, where one is initiated into the kingdom of Christ and "born anew" into this covenant family. Then there is the middle, a long series of conflicts and complications that test and temper the believer towards holiness. At the end, the one who has endured inherits the fullness of the kingdom - though there are some who forfeit their birthright and end up badly by their own choices.
Before closing, I must note that good storytelling is not completely absent among conservative Protestants. This is clear by many fine novels coming out of CBA circles recently. Granted, much of it is still spiritually and sexually "safe" fiction for a market looking to be entertained and comforted at the same time. But some risks are being taken, and that's coming a long way from the days when fiction of any sort was rejected as a 'lie' unbefitting a believer.
The edgier - and more honest - fare is being published outside CBA, and I'll take a look at some of that work another day.