Not sure I agree, how else are they meant to prevent the ocean of "It wasn't me, it was my brother" excuses from hackers smurfing accounts?

I'd recommend (to everyone) that if you're unsure -or have even the slightest doubt about the person you're going to give access to your Steam account- to politely decline and play it safe.

It is not different from how the previous shared libraries worked. I guess it's there to stop cheaters from buying a single copy of the game and sharing it with throwaway accounts.

I guess it's to prevent creating family members for the purpose of cheating

I think it's a great rule. If you're sharing your library with others, don't be am asshole and cheat. If you do you'll be a disappointment to them too. More social pressure to not cheat is only a positive in my opinion, but also I will never cheat and I only share my library with people I'm confident won't cheat as well. I don't associate with people who want to ruin other's fun. If you do then that's on you. It's your choice to risk getting banned.

I mean, someone should get banned from cheating. I can see why this happen though, since the account playing does not own the game the account which has the game linked gets banned instead. If the account cheating has the game they are instead playing on their copy and that gets banned instead (i assume).

However the ban should be linked to the account and not the copy of the game. I do not understand why this isnt the case. Maybe because someone could just make a new account and link that to play on instead, therefor never having to buy more than one copy of the game while cheating.

My question is, when there are 5 people with 5 copies of a multiplayer game in the pool, and the 6th member without a copy gets banned, which of the other 5 members gets banned?

Just hide those games from your shared library and you will be safe