Robert Darnton, one of the most thoughtful commentators on the Google books deal, has written about the latest developments in a further New York Review of Books article, Google and the New Digital Future. It's a good overview of the debate. Darnton concludes with his own suggestion:

“The most ambitious solution would transform Google's digital
database into a truly public library. That, of course, would require an
act of Congress, one that would make a decisive break with the American
habit of determining public issues by private lawsuit. The legislation
would have to settle ancillary problems—how to adjust copyright, deal
with orphan books, and compensate Google for its investment in
digitizing—but it would have the advantage of clearing up a messy legal
landscape and of giving the American people what they deserve: a
national digital library equal to the needs of the twenty-first
century. But it is not clear how Google would react to such a buyout.

If state intervention is deemed to go too far against the American
grain, a minimal solution could be devised for the private sector.
Congress would have to intervene with legislation to protect the
digitization of orphan works from lawsuits, but it would not need to
appropriate funds. Instead, funding could come from a coalition of
foundations. The digitizing, open-access distribution, and preservation
of orphan works could be done by a nonprofit organization such as the
Internet Archive, a nonprofit group that was built as a digital library
of texts, images, and archived Web pages. In order to avoid conflict
with interests in the current commercial market, the database would
include only books in the public domain and orphan works. Its time span
would increase as copyrights expired, and it could include an opt-in
provision for rightsholders of books that are in copyright but out of
print.”