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Wow, I thought I knew the C128 pretty well. I still needed to search the internet for several hours to answer this.

(2017.03.03) I have added a second answer with diagrams and more technical details. This answer is already huge and self-contained; the other focuses on the complexities due to hardware.

1. The Z80A was sort of an after-thought in the C128 design. Before release it had been touted as "fully C64 compatible" (which the earlier C= Plus/4 was not). However, the C64 had a Z80 cartridge allowing it to run CP/M. For whatever reason the cartridge could not work on the C128, so they added the Z80 directly to the motherboard. (see reference #3 below)
2. I/O was doubly indirect. Actions such as reading from the keyboard and writing to the screen first went thru the CP/M BIOS layer. Then it had to switch CPUs! From the Commodore 128 Programmer's Reference Guide (PRG), page 500:

(2017.03.03) I have added a second answer with diagrams and more technical details. This answer is already huge and self-contained; the other focuses on the complexities due to hardware.

1. The Z80A was sort of an after-thought in the C128 design. Before release it had been touted as "fully C64 compatible" (which the earlier C= Plus/4 was not). However, the C64 had a Z80 cartridge allowing it to run CP/M. For whatever reason the cartridge could not work on the C128, so they added the Z80 directly to the motherboard. At that point, they were already 2 months into their 5-month development cycle. (see reference #3 below)
2. I/O was doubly indirect. Actions such as reading from the keyboard and writing to the screen first went thru the CP/M BIOS layer. Then it had to switch CPUs! From the Commodore 128 Programmer's Reference Guide (PRG), page 500:

A 2011 update to C128 CP/M, by Linards Ticmanis, addresses some of the CP/M driver performance limitations of the original and purports to improve 80-column screen updates by 75%.

A 1999 update to C128 CP/M, by Linards Ticmanis, addresses some of the CP/M driver performance limitations of the original and purports to improve 80-column screen updates by 75%.

The 8502 is responsible for most of the low-level I/O functions. The request for these functions is made through a set of mailboxes. Once the mailboxes are set up, the Z80 shuts down and the 8502 starts up (BIOS85). The 8502 looks at the command in the mailbox and performs the required task, sets the command status and shuts down. The Z80 is re-enabled; it then looks at the command status and takes the appropriate actions. 3. Updates to the screen were s-l-o-w. I believe this was due to the impact #2 had on interacting with the 8563 video controller. Although a block mode character transfer was possible, apparently the complexity of the dual-BIOS layers led to only one character being written to the screen per BIOS call. To write a character, two 16-bit 8563 registers needed to be updated, which were the hardware pipeline to the 80-column video memory. That all amounts to a heckuva lot of overhead per character. 4. Some users only had the classic C64 model 1541 disk drive. This was already known for being very slow (to be fair, "faster than cassette"). The newer 1571 drive, released with the C128, was three to six times faster, had double the capacity, and supported several CP/M formats used by other manufacturers.

The 8502 is responsible for most of the low-level I/O functions. The request for these functions is made through a set of mailboxes. Once the mailboxes are set up, the Z80 shuts down and the 8502 starts up (BIOS85). The 8502 looks at the command in the mailbox and performs the required task, sets the command status and shuts down. The Z80 is re-enabled; it then looks at the command status and takes the appropriate actions. 3. Updates to the screen were s-l-o-w. I believe this was due to the impact #2 had on interacting with the 8563 video controller. Although a block mode character transfer was possible, apparently the complexity of the dual-BIOS layers led to only one character being written to the screen per BIOS call. To write a character, two 8563 registers needed to be updated, which were the hardware pipeline to the 80-column video memory. That all amounts to a heckuva lot of overhead per character. 4. Some users only had the classic C64 model 1541 disk drive. This was already known for being very slow (to be fair, "faster than cassette"). The newer 1571 drive, released with the C128, was three to six times faster, had double the capacity, and supported several CP/M formats used by other manufacturers.