To the OPs question: there's nothing wrong with leather. It has two potential drawbacks:
1) Leather is porous and retains water
If you plan to wear the sheath day in and day out in a rainy, wet or extremely humid climate then leather may not be the best choice. Yes, you can dry it after it gets wet but it takes awhile. Yes, you can try to water proof it but waterproofing can soften the leather and no matter what you do it will never have the water resistance of Kydex.
2) Leather is an animal skin product
There are apparently critters that like to eat leather. I have never had this problem but I have heard of others that have.
One major advantage of a kydex sheath is that you can safely store your knife in a Kydex sheath, assuming the Kydex is dry. Because leather is hydroscopic you don't want to store a knife in a leather sheath.
Having said all this, I prefer leather for all my knives. I don't store the knives in the sheath. My sheaths rarely get wet or exposed to very high humidity for extended periods of time. I think leather looks better and feels better on the belt.
Ultimately it's your call...for 90%+ of the folks on BF, it probably doesn't matter either way.