Considering they hold the keys and the scheme already allows them to decrypt as a last step the users photos, this is not exactly a progress. It just maintains the illusion that those backups are encrypted while they (ultimately) aren't.
I've personally (and some may disagree) always assumed that anything you put in any cloud (and that includes the very convenient iCloud backups that I use) is fair game for local authorities, whether that's true in practice or not.
Putting a "snitch" on device, even if it's only for content that's going to the cloud (and in the case of an iCloud backup, doesn't that mean all your iPhone content ?) is the part that goes a step too far and will lead to laws in other countries asking for even more.
Once you've opened the door to on device scanning, why limit it to data that goes to iCloud ? Why limit it to photos ? They proved they have the "tech" and governments around the world will ask for it to be bent to their needs.
I'm sure the intent was well meaning but I'd much rather they just do this on their premises and not try to pretend they do this for privacy.
