The reason there is so much controversy about this issue is that there is no electronic version of the book. That's pretty unusual for new books of this magnitude. Electronic versions aren't universally accessible, of course, but they have obvious distribution benefits (instantaneous shipping and ~zero marginal production cost). In a publisher's perfect world, everyone would want the physical book (in hardback) but be willing to buy the electronic book if it weren't available; that way a publisher could order a conservative print run but still capture all the excess demand and part of the excess profit. In the real world, people are increasingly unwilling to pay $25 and up (hardcover price) for something to read.
I think it's true that electronic distribution, if and when it percolates fully, will reduce profits on certain kinds of books. More frightening for the literati, it will destroy the mid-list. In the current system, mid-list authors (those who don't have a famous name or the full backing of their publisher's publicity machine) are chosen for quality and marketability. Those authors need publishers to edit their books and turn them into physical products, and we as readers need publishers to find good books and make them better. Formatting an electronic book for publication is easier, and as e-readers percolate, marketplaces for e-books will become more open. It will be harder for the casual reader to distinguish between a "professional" book (i.e. one that has been selected by an editor, that has gone through an editorial process, and that has been packaged for readers) and an amateur book (which could be just as good - or could be the accumulated rantings of a lunatic), and so the prices of the two products will converge. There will be some gains, as writers are able to reach their audiences without going through the filter of a publisher. But there will be (many more, I think) losses, as the market is flooded with low-quality product and readers begin to rely increasingly on the few books that have been selected for heavy promotion (i.e. the ones you see on the tables in the front of the bookstore), which may not be the best books but at least have a certain guaranteed level of professionalism.
This will all even out over time. Readers will become willing to pay a premium for a book with a known publisher's imprint, and publishers and editors will regain some of their power and profit margins. Self-publishing authors will need to improve or promote their product for it to be successful. There will be more fluidity in the whole process, and eventually everything will be better.
But one thing that will be lost is inefficiency. The tens of thousands of remainder books that are returned to publishers and pulped every year - there won't be nearly as many. Physical books will be printed only for blockbusters, or mass-market evergreens (romance novels, etc.) for which demand is predictable, or on demand. This will be good for profit margins, and it will reduce the potential loss of publishing a book (allowing quality to be a stronger determinant of publishability relative to marketability). What it will be bad for, and what I will miss, is the supply of $5 books - quality novels and former bestsellers and last year's social science fads - stocking the discount shelves at Barnes and Noble. It is also possible, although I think unlikely, that I will also miss Barnes and Noble itself.