While I agree with you, I think the fact of the matter is that most public libraries aren't sophisticated enough to know the difference. They are doing, I believe, what they believe will reach the widest audience with their limited budgets... The most bang for their buck.

My knowledge of ebook formats is somewhat limited, but I'm not aware of too many formats that are library-friendly. I know that the Adobe format, which I personally hate (too bulky, too slow), is convenient for libraries in that it supports lending periods. I'm not sure that Microsoft's format (proprietary, I realize) supports that at all. This obviously is a huge consideration.