You cannot assume companies always act logically. In this case they could have agreed to it just because it was "cool".

They didn't do it out of altruism, they did it because it was excellent publicity.

This is probably accurate, but it doesn't give them a long term advantage. It probably gave them a small boost in marketing (I say small because I have never heard about this). Marketing doesn't hold up without investment. (for those of you who say iconic brands will hold up, keep in mind that every iconic brand advertises constantly.)

Further, the government arbitrarily "subsidizes" businesses constantly. In many cases much more so than Twitter. I agree that any subsidy (whether monetary or otherwise) should be examined, but in this case it seems to be a complete nonissue to me.

And people object to it constantly.

But you really think it is affecting users' actions now months later? I'd be surprised if anyone considers LoC archiving a feature that keeps them locked into Twitter instead of starting a blog. (Notwithstanding LoC's efforts to archive all sorts of digital content... you make it sound like Twitter is an outlier.)