Why couldn't they just use SQLite, and not libSQL?

LibSQL doesn't look anywhere close to active enough to consider it for production IMO.

Just compare the most recent commits from LibSQL: https://github.com/tursodatabase/libsql/commits/main/

To those of SQLite: https://sqlite.org/src/timeline

One of these looks like a healthy and actively maintained project. The other isn't quite dead, but it's limping along.