Holder made the decision to sue Arizona BEFORE he read the law. When he finally got around to reading it, imagine his reaction:
"HEY!!! Where's all the discrimination everybody told us was in that bill? ...Oops!"
Part of the power of the Obama administration is their ability to selectively enforce the law, to choose the enforce it against their enemies and refuse to enforce it against their allies (see, for example, the dropping of the case against the New Black Panthers for voter intimidation). THAT is what they’re upset about. If other states take steps that would compel prosecutions that Obama would rather not happen, then his ability to reward friends and punish enemies is reduced.