This is not the first time I've heard of this issue, and I'm only a casual library user. The library world has been talking about this for years - but who listens to them?
I'm pretty sure any music that can be bought on CD can be lent by a library. Mine sure has a big music section. Too bad in this case it sounds like a noteworthy performance won't be released that way, and the final paragraph about the recording being lost is sad but true.
Hoping for a legislative solution doesn't seem likely. Citizens United ensures that money speaks louder than citizens, and I suppose iTunes generates a fair amount of money. As long as our legislators can be bought and sold, this situation will get worse, not better.