Libraries first introduced free e-books in 1998, and it has been going strong ever since. However, personal libraries of physical books continue to grow, as well. Not only are people still buying physical books, many buy several editions of the same book for their collections.
For example, I currently have "To Kill a Mockingbird" by Harper Lee in paperback, hardcover, and I just recently purchased a UK edition. When I visit Monroeville, home to Lee, I will probably purchase another copy there, simply to have one that was purchased in her hometown. That is four of the same book, but different versions.
I recently saw a pic of a bibliophile's "Alice in Wonderland" collection. Books and books and books of one central story. Now, she may have a electronic copy of this book on her reader, but the sheer pleasure of developing such a collection of books based on one story ... well, there is nothing else like it! Nothing else compares, and only another crazed-book-lover would totally and completely understand.
The other reason I think the book vs e-reader debate is finally becoming a non-issue is the movement from "the reader" to "the collector" of books. There are vast numbers of collections out there over which book lovers drool. Here are just a few:
Drop Caps by Penguin
Designer Collection of Modern Classics by Virago
Anything (and everything!) by Juniper Books
The First Ten Penguins by Penguin
And then, there are the sets. Like The Hardy Boys, Nancy Drew, Lord of the Rings, Chronicles of Narnia...There is virtually no end to these "must haves" for home libraries. I am currently collecting books which have won the Pulitzer Prize for Fiction.
So, while book sales may have dropped for new releases, I think publishers and booksellers have found a way to diversify and entice more shoppers. It's a savvy market which can sell someone something they already have!