McCain has stated that he is looking for a VP who is significantly younger than him. Colin Powell at 70 doesn't meet the criteria. As a moderate Republican, he also wouldn't help McCain in consolidating his conservative base. His vigorous initial support of the Iraq War (which he later recoiled against) also did some damage to him among moderate voters. 10 years Powell would have probably been a shoo-in for the Presidency, but I think his time has passed for a political career at least.

That said, I have always believed that Powell would have been an excellent President had he decided to run. Politics just isn't his thing though.