There is a product reason - AI features are fundamentally incompatible with E2EE. If they want to bring more AI generated experiences and content into Instagram then the data needs to be accessible by them.

I can think of a few reasons why a company built on profiling (and advertising to) user interests might be interested in the private conversations of their users

I can think of some. Less code complexity to support a feature that didn't work properly and nobody was using? More ability to detect spam?