Copyrighted works only show snippets, and publisher-enabled limited previews.
Yes. And they can lend those books to people due to the first-sale doctrine, which allows the legal owners of a work to lease, lend or sell it without the copyright owner's permission.
the judge said the conversion to digital was not transformative, so I don't see why it should constitute another work versus the original one
The first sale doctrine (which libraries depend on) says you're allowed to to sell, rent out or give away your own physical property, even if that property happens to be an embodiment of a copyrighted work. It doesn't say anything about it being legal to make another copy of a work, and then distribute it while you keep the original one for yourself.
There's an app for that.