Why shouldn't publishers be allowed to set the selling price of their own books?
Because Publishers aren't fixing the price that they want to sell the book for, they are fixing the price that everyone else is allowed to sell at. So if Amazon wants to sell at 20% margin instead of 30% they can't.
I suspect the issue is that Apple wanted to protect its margins so it "arranged" that the publishers don't allow Amazon (as a retailer) to compete on price with Apple. There was competition and now there isn't.
The publisher can always set the wholesale price for books, its retail competition that Apple may have been trying to stifle. Retail in this case is of an undifferentiated product (an ebook is an ebook) with very low distribution costs. For Apple to compete they would be competing head-to-head with Amazon's retail experience.
Apple has itunes, which is a fairly compelling story for apple device owners, Amazon has a much broader product range, economies of scale and can reach any device. Who will buy or use an ipad if the same product is cheaper elsewhere? The last thing apple wants to do is cut margins or have to monitor the competition to see if they are competitive. They want to be a one-stop-shop for content producers and consumers. Being cheap is not what apple does so they need to stop everyone else from being cheap to maintain sales.
There are some things that apple do well and have value - timemachine makes backups easy enough for normal users and having backups adds value to their products. Just inflating selling prices is not adding value, its profiteering. I wish apple would concentrate on doing things better rather than using politics and the legal system or backroom deals to try to squash the competition.