>If they have the physical book how is this any different, it had to be purchased at some point or donated for them to acquire it. If anything I would argue they are doing more work for the publishers by creating an ebook from scans

The publishers and the third party platforms libraries force people to use for digital lending can force ebook readers to create accounts and hand over their personal data and reading history and those platforms use that to push ads or sell that data to publishers and other third parties.

What the internet archive was doing didn't allow publishers to collect/sell that personal data, didn't give them the ability to limit/censor/remove titles at any time, and didn't allow them to charge excessive fees for the "privilege" of loaning the book electronically. From the stance of the publisher they risked losing a lot of money and power. From the stance of everyone else what the internet archive was doing was an improvement.