Were the Istari Unable or Unwilling...

[Raynor]

It would seem that the Valar, in sending the Istari forth, actually had curtailed and dimmed their memories of their true nature and essence.

That is what it seems like. Also in Unfinished Tales, in the Istari chapter, part Four, it is stated:

For it is said indeed that being embodied the Istari had needs to learn much anew by slow experience, and though they knew whence they came the memory of the Blessed Realm was to them a vision from afar off, for which (so long as they remained true to their mission) they yearned exceedingly. Thus by enduring of free will the pangs of exile and the deceits of Sauron they might redress the evils of that time.

It is interesting to note the last part, that their diminished status and their suffering, as a penitence, helps redress the evils of that time.