Just because the library was relatively empty at the time you went there doesn't mean it's like that all the time. It might be much busier if you go at a different time.
There are three public libraries where we live now that are very vibrant. Tons of programming for young children and parents. They also present the books sort of like in a video store (remember those?) so that it makes you want to read them. We dropped in on a Friday night on the walk home after dinner and the place was absolutely hopping.
About the "archaic" library system, though, I can confidently say that putting all books on a CD or other electronic medium and getting rid of the print copies would be an absolute disaster as far as long term storage is concerned. Data types and information systems evolve at such a rapid rate, that not everything will be upgraded as time goes on. We would lose a huge part of the historical record because machines won't be able to read CDs made today, say, a hundred years from now. You'd have to preserve the machines too. With physical books, as long as a person knows the language they were written in, they can be read.
You also have Google chewing through university libraries at an alarming rate and making those books availabe online (well, the ones that are out of copyright, at any rate). That's all fine and good, but for students who need to experience the materiality of the printed page in order to understand, say, the sensibilities of a place in the past, the digitized documents, no matter how visually faithful to the original, will cut out that whole range of information. When we read books, we take in a lot of information from our hands and our noses, and not just what the text says.
Jeff