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The encryption is literally entirely irrelevant.
The argument that a copy in your browser is legally defensible is the equivalent of claiming that sites can legally stream movies to you. It is a copy, both legally and in reality.
I can see where you are going with this. But there is NOT a copy in my browser. Only a representation of a fraction of the whole book at any given time. I cannot make a copy.
When I am viewing the section of the book, the rest of the book is "checked out". No one else can look at it. Is this not how a library works? I check out an item, then I take it back? Are they not making the steps to make sure I can check it out, read it, and then I have to give it back?
Since libraries are allowed to loan from their collection, what makes digital any different? In the case of video, if the library wanted to check out a video and stream it to me, I see no difference than me checking it out myself. In fact libraries are granted the right to show videos to me and small groups, so why can't I be farther away than in their building?
The current move of libraries to streaming services is exactly because of this. Now the library has a license, and cannot share the stream without the license. This is a move to remove physical items so that the possibility of streaming from a physical item is moot.
It doesn't matter if the copy is all at once. Every bit of the file touching your computer involves multiple copies. It is fundamentally impossible to share any file without copies being made. The original digitization is already probably illegal because it's for the purpose of distribution and not one of the fair use exceptions. Again, this is exactly identical to the claim that pirate sites providing streaming is legal.
Libraries do not make copies. Legally, it's exactly that simple. There is no ambiguity in any way. It is copyright infringement under current law. It is not possible to defend this without throwing current law in the trash and starting over from scratch. If the judge did somehow rule in IA's favor the Supreme Court could overrule him in about 30 seconds with basically no deliberation. Courts do not have the authority to change the law.