Carriers meaning the interconnect providers eg Level3, Cogent etc? How would this intercept be implemented in practice? Surely it'd be much easier to add a node as close as possible to the origin host, i.e. within the Hetzner network, rather than redirecting traffic from the outside with some sort of BGP hijack?

any carrier on any level

but like other have pointed out this seems to have been in the hetzner network

through wire taping laws also extend to datacenter internal interconnects I mean servers of different people can communicated with each other without the traffic leaving the server so it kinda makes sense

Yeah, agreed. But if all you need is to control a response from an IP to a verification query from LetsEncrypt, then it would be easier to just ask the entity controlling that IP space (in this case Hetzner) to setup the route for you. If you do it at the BGP level then you need the cooperation of all the peers.

I think the observed TTL 64 means the interceptor is on the same segment? (of course unless they have set it to e.g. 66 at the interceptor that is 2 hops away, but I guess if they were to mangle TTL, they would set it to the original value to avoid detection)