Dear British people:
The issue with tea bags is not with the paper, but with the tea leaves themselves. The leaves in a tea bag are often not the freshest and during packaging and transportation they get crushed and broken, resulting in a lot of dust. This damage to the leaves actually had a negative impact on the flavor. The leaves in a tea bag are also (usually) densely packed together which prohibits the water from flowing around each leaf, again negatively impacting the flavor. Loose tea leaves, on the other hand, tend to remain much more intact during packaging and transportation. They are also, as the name implies, loose and allow the water to flow around them much easier in the teapot.
In the end though, it's mostly a matter of tea-snobbery. While fresh, loose tea will give you a better flavor most people find tea bags more convenient to use. If you don't feel like spending the extra effort to brew loose tea, you can still find some decent brands of tea bags that will give you a fine cup. Just stay away from Lipton. That stuff is shit.