Simple. He does not want to annoy the Chinese.
His arugment for meeting the Dalai Lama in Lambeth palace is to point out that it is a spiritual meeting, not a political one. I am not sure if that is right or not. Personally, I would go for the all or nothing approach and meet him at Downing Street.
While I understand that the Chinese think that Tibet is part of China, and I am aware that the people of Tibet were worse of when independent than they are now, I also feel that they have the right of self determination, and should be allowed to be independent if that is what they wish.