Thank you for providing a description of your workflow. This information is very helpful in understanding both precisely what is happening - and your expectations.
Presumably you have updated your iPad to iPadOS 17.x - at time of writing, this being iPadOS 17.0.3.
The behaviour that you describe in iPadOS 17.x is consistent with the previous version - iPadOS 16.7.1. What is different between the these two versions is what you see when you long-touch an image.
For iPadOS 16.7.1, you see this:

Here, for iPadOS 16.7.1, there isn't a Show Text action - but instead you do still see Save to Photos.
As you have described, iPadOS 17.0.3 behaves differently - in that you see a Show Text action...


When Show Text is selected from the available actions, the thumbnail image expands to full screen. Whether or not this function is intended to trigger the Live Text feature is unclear - but at present, Show Text does not operate as you perhaps anticipate.
Whether or not this behaviour is intended, or is a bug, is unknown. At present, I have not located any documentation that describes the added Show Text action, or its expected behaviour. There are many inconsistencies between the current released version of iPadOS17 and the User Guide - many of which are definitely bugs or incomplete features.
Notwithstanding the above, there are workarounds for capturing text from an image...
From the open webpage, simply touch-and-hold a single word within the block of text that you wish to capture; this will highlight the selected word:

Use the drag-bars, that bound the selected word, to expand the selection - then select Copy

The selected text will now have been copied to the Clipboard - and can now be pasted to another document or App.
Remember, as you have already confirmed, you can still take a screenshot - and use the Live Text feature to directly capture text from the screenshot. This functionality remains consistent between iPadOS 16.x and 17.x.
I hope this analysis and explanation is of some help to you.
You might be well advised to seek additional assistance directly from Apple Support. You can contact the Support Team using the Support link at top-right or bottom-left of this page. You can also initiate and manage your support cases from Apple devices using the excellent Apple Support App. If not already installed, the App can be downloaded from the App Store:
https://apps.apple.com/app/apple-support/id1130498044
Also consider submitting a Bug Report to Apple using the Product Feedback portal. Unless bugs and issues are reported directly to Apple, these issues are unlikely to be investigated and fixed:
Feedback - iPad - Apple
When submitting your Bug Report, ensure that you include your iPad model and installed version of iPadOS in the body of your report. Do not rely upon the pick-list - as this rarely includes the recent versions of iPadOS within the list of choices. Be as descriptive as possible; if necessary, include a link to this conversation - as this may help:
https://discussions.apple.com/thread/255221663