Having a single test script per module is not always practical.

Also I find having people work independently is harder if you keep everything bundled together. With separate distributions you can check individual modules in and out, only update single modules, avoid name clashes with test scripts from other modules, document prerequisites on a module-by-module basis, etc.

There are certainly other ways of getting the same sort of functionality - but I don't see that having multiple module directories has any major disadvantages.