sirj14, I think there are several possibilities here. One is that she thinks you're vain or too "high maintenance." Perhaps she thinks you spend too much time on your appearance--whether it be working out, shopping for clothes, or getting ready to go out--and she wants a guy who is more casual and laid back. (Not everyone like the perfectly groomed type.)
Or, perhaps she is the one who is vain and in some sense she's afraid you're competition.
Or she's insecure about her looks and worries that you're "out of her league," that you'll never really be satisfied with her the way she is, and that you're only with her until you find someone better, and that eventually you're going to leave her. By putting limits on how far your relationship goes, she's trying to protect herself by not getting too attached to you. I think this is the most likely option.
As a general rule, I think it's safe to say that attractive people get more attention (although not always positive attention) than more ordinary looking people. When one member of a couple is more attractive than the other, in various social settings they often get more attention than the more ordinary looking member of the couple. (And it doesn't have to be a couple, it could just be a pair or group of friends.) Speaking for myself, my looks are average enough that I've sometimes been the best looking person in the group, but I've also been the least attractive person. I can tell you that it is no fun to be overlooked--or worse, ignored. Maybe it's shallow of me, but I'd much rather be the pretty one.
Sometimes the "pretty one" in a couple or group enjoys the attention they get so much that they are oblivious to the fact that other people are being left out. Maybe this is what the OP's not-quite-girlfriend is worried about. One of my college friends was all too pretty, and could be an insensitive jerk at times. He'd get caught up in conversation with some new and interesting person he'd just met to the point of ignoring his friends.
I think we often assume that we don't have to compete with the person we're dating, but alas that isn't always true. If one person is better looking, more physically fit, more well-read, more travelled, more extroverted and/or socially connected, makes more money, etc., the other person may feel left out, left behind, or like they don't have as much to bring to the relationship. Maybe it's wrong to have those kind of insecurities, but it's also very human.
There's a guy I work with who is, as far as I'm concerned, the most beautiful man alive. He's the living embodiment of my idea of perfection. We're both 37, but although I've aged better than most of my peers, I look old and haggard compared to this guy. Also, unlike me, he's kept himself in very good shape. (I was never in good shape, even when I was younger.) Now as far as I know this guy is straight, but for the sake of argument let's assume he's not. If he asked me out on a date, of course I would say "yes," but I'd be very intimidated by his looks and his greater level of physical fitness and probably plagued by thoughts that I wasn't good enough for him. If things progressed towards physical intimacy, I'd be afraid for him to see me naked, and sure that once he did he'd realize that he made a terrible mistake and that he'd "just want to be friends." Even if we got past all that and things were going well between us, I'd still be worried that he'd lose interest in me as soon as he met a guy more attractive and physicall fit--in other words, a guy more like him--which, of course, would eventually happen.
Obviously, I'm a bit insecure. I realize that it's not healthy and it's not an attractive quality. I'm working on it.
You'd think she'd love to show off a really good looking boyfriend, not shun it. Some of the girls I've dated have been absolutely beautiful and for me, it was an ego trip to be seen arm in arm with them in public and amongst my friends.
I understand your point of view, but it doesn't always work that way, as I've tried to explain above.