This battle has major repercussions. So far, it is being characterized as the classic x vs. y, that the media likes so much. It is more nuanced than that. It's my understanding that Google is going to digitize and index all works, including copyrighted works not specifically excluded by the rights owners. If a work is copyrighted, Google will only display a short snippet and a link to a book store (or perhaps local library) where you can buy/borrow it. This is hardly "posting the work to the Internet," and more like an upgrade to the Dewey decimal system.
What it does do, and this is a worry to publishers, is take marketing out of their hands. In effect, Google is building a granular marketplace for all content (something everyone says they want but nobody can build). Beyond books; research papers, essays, newspaper and magazine articles, background files, etc could make their way into this system. Search allows everyone to find what they want (I wonder how they handle reputation, Googlerank, the secret sauce that makes their Web site index so good). What's even cooler is that they are also digitizing all works where the copyright has lapsed. These works will likely be made available in a complete form (pdf).Personally, I think this is great. Publishers will likely find that they sell more books this way than through traditional means. They could potentially control the marketing message and the amount of text (as a teaser) they make available by the a search of the index. The results of this experimentation could be seen immediately in sales at Amazon or other locations (fewer wasted marketing dollars = efficiency). Also, e-books could finally become viable (particularly if Google finds a way to store all e-books you buy and provides you with an searchable repository).