In a word, dropout. A regulator like this can't output the same voltage it receives as input. I checked the data sheet and it indicates 380mv at 100ma (and presumably more at higher loads and/or temperature ).
As for solutions, I'm not really sure. Increase input voltage somehow?
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Oh snap... I was looking at the multi-pin variable one on the data sheet...
Linear regulators shouldn't be THAT crazy esd sensitive, should they? Where's Encyclopedia Knaack when you need him?