Kevin Kelly has a long New York Times article about digitizing books, Google's solution to the orphan works problem, and the clash of the copyright monopoly business model versus the disruptive competitive digital technology model.
Kelly points out that the five publishers that sued Google last year are partners in the Google Book Search Partner Program. They want readers to be able to search books because it's good for their business. But like any monopolist, they don't want to give up their rents.

Let's not forget that google is a monopolist too. Personally I feel a bit nervous about them digitizing the entire human knowledge, and being the only ones doing it. We know little about the terms negotiated with the libraries participating to the book project. Is google guaranteeing free access to uncopyrighted books? Do participating libraries have the right to retain a digitized copy of the scanned books? What happens if Google were to go bankrupt? We don't know that. Once google's digitized library is in place, libraries will feel their archiving role is not as important anymore, and will start to destroy old books to save costs and free up space. But then Google's will get a monopoly as a librarian. I think we must keep an eye on Google, it gets scarier every day.

Google is a monopolist of sorts, but unlike Microsoft (at least in the pre-open source era), it has no proprietary lockin technology like Windows. Google's share of search is around 50%, far lower than Window's share at its peak, and down from 80% not too long ago. This shows that rivals are nipping at its heels, and suggests that they could do so in areas far removed from its core competency, such as digitizing books.
My guess is that libraries are thinking about your questions. Google will probably figure out a way to monetize access to uncopyrighted books, such as an advertizing model. I have no problem with this. If Google were to go bankrupt, I assume cpmpetitors would step into the breach and continue this work.

The Economist (May 13) has a Special report on Google, "Fuzzy Maths", which points to some problems in Google's business, such as its core search product followed by lots of so-so me-too products that aren't number one in their classes (e.g., Google Video, Google News, Google instant messanging); and that fact that its alienating lots of folks the way Microsoft once did (Google News was in beta version for four years). Google's sheer rate of growth and increasing complexity is making it hard to innovate and hard for investors to value its stock, which is why it may not be such a hot investment for the long run. I think the market will sort out digitizing books in a way that is to the advantage of reader-consumers, but not to that of Google's investors.