As cliche as it may sound, I think that the publishers are simply afraid of that which they don't understand. I rarely use Google Books but the few times I have I immediately noticed that what I am looking at is not the entire book. The fact that this isn't well know by the publishers makes it clear; they have no clue what Google Books is, but they don't like it.
The whole situation seems similar to physical books in stores. Anyone can walk in, pick one up, read, and never pay a cent. But publishers don't complain about that.
Because most people won't try to read whole books this way. It's inconvenient by being time-consuming. Google Books is also inconveinient (for different reasons). There are exceptions, but they exist for both cases. The fact that GB limits how much content they show also pushes readers to buy the books.
I think that book publishers really DO have something to fear from piracy. Not right now, obviously- real books are hands-down a better experience than reading on a computer. But the digital means are going to get more and more compelling over the next few years, and a generation is going to grow up with a different concept of "book".
disclaimer: I've never used an ebook reader. I have read books on my computer screen.
I wouldn't propose doing this, but would it be possible to automatically extract the entire text of a book from Google Books?
I mean, if I search for something it will give me the pages just before and just after, right? Can I then conduct searches for rare phrases found on the pages just before and just after and work my way outwards? Or have they done something to prevent this?