Why? My broker doesn't let me trade unsettled funds, even though I've made a sale and they're "in my account." How hard would it be to create a restriction that says you're not allowed to double-loan the obligation to return a share borrowed in a short sale?

Because when you buy a share on the market there is no notion of it being "a true share that someone sold to you" or "a borrowed share that someone sold to you". The only way to prevent double-lending is to prevent all lending.

How do you know that the stock was loaned in the first place? If there is a way to know is there a way I can buy the original non-borrowed one - this should be worth more money because I can borrow it to someone else.

It sounds simple, but the details make it hard.

Your broker lends your share out.

I borrow it.

I sell it to Tom.

I borrow the share from Tom's broker.

Tom's broker and I both have no idea it's "the" "same" share I borrowed.

Boom, 200% short interest on "that" share.