So why are people freaking out about a hash scanning system as an invasion of privacy when the grab anything from your phone contents feature has been there for 10+ years?

Policy-wise Apple have just said "yes, we are going to use our super-admin powers to push updates to turn your phone against you".

Sure, a suitably powerful authoritarian org could do lots of secret things, but that isn't what happens in real life: in real life you publicly change policy in increments and get everyone to go along with it.

"Apple was actually scanning all users photos for CSAM regardless of iCloud usage due to a bug in the most recent firmware" is a headline that is guaranteed in the future.