What went awry is what's described in the article -- the rights holders killed the possibility of fulfilling the goals of the grand idea with lawsuits. I wouldn't be eager to continue on with a project after getting that reception either.
So google's feelings got hurt? Give me a break. Obviously they were primarily motivated by attracting the almighty user attention, and positive pr to their brand, all part of a long term strategy for money, and that didn't work out so well, and they never cared much about doing a public good, or else they would continue to support the over 1 million public domain books they have. Or, if they really cared, they would have put code of their books site out as free software, and helped share their entire collection of public domain books with other organizations.
To use an analogy, if someone gets their car stuck on a snowy road I'm going to go help dig them out. If they start shoveling show to re-bury their tires I'm not going to continue helping them.